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S&P 500 Starting the Week in the Hole After Meager Bounce

S&P 500 Starting the Week in the Hole After Meager Bounce

What’s inside:

  • S&P 500 broke a confluence of important trend-lines last Tuesday
  • Market failed to show much response to the sell-off leading into a poor start to the week
  • Levels outlined

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On Thursday, we expressed our view that without a quick turnaround after the sell-off on Tuesday (broke key trend-line confluence, created a lower low), the S&P 500 would be vulnerable to further losses, proving the 1%+ drop to be the real deal and not just a one-off event. The rest of the week after the drop demonstrated the type of weak price action which lends to a follow-through.

In overnight trade, we saw risk aversion hit Asia (Nikkei -1.44%) and currently Europe is under pressure (DAX -82 bps, FTSE -72 bps). The S&P 500 futures at the time of this writing are lower by 20 handles, or 86 bps – we’re in for a fairly strong down open barring a market-reversing headline.

At this time, the cash open will come below the Friday low at 2335. Looking lower, there isn’t any significant price support until the 1/26 swing-high of 2301. As long as we don’t see a ‘gap-n-trap’ buy situation which erases a significant portion of today’s losses and then some, we are looking to the area around 2300 as the near-term target.

How entrenched the current ‘risk-off’ environment becomes is yet unclear. So far, there aren’t any significant catalysts and the price action isn’t flashing uber-bearish signals. The feeling on this end is that this is likely just a correction, and at some point we will find a trade-able low which will lead to a challenge and likely new set of record highs.

But for now, we will keep our focus narrowed on the price action immediately in front of us.

The economic calendar for the week in the U.S. isn’t loaded with ‘high’ impact events – Tuesday brings Advance Goods Trade Balance, Consumer Confidence, and Yellen speaking; Wednesday we have final Q4 GDP. For details on time, expectations, and other scheduled data points please see the economic calendar.

S&P 500: Daily

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---Written by Paul Robinson, Market Analyst

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You can follow Paul on Twitter at @PaulRobinonFX.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.