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S&P 500 & Dow Jones Charts: Volatility May Simmer Down After Springboard Bounce

S&P 500 & Dow Jones Charts: Volatility May Simmer Down After Springboard Bounce

Paul Robinson, Strategist

S&P 500/Dow Jones Technical Highlights:

  • S&P 500 drops into support, has it on the move higher again
  • Dow Jones staved off further losses from confluent support
  • Volatility may die down a bit, but remain elevated

Traders are reacting to the uptick to volatility, to see how check out the IG Client Sentiment page.

S&P 500 drops into support has it on the move higher again

There is no shortage of volatility these days, making it a two-way market for nimble traders on the move. Yesterday’s fierce bounce came from trend-line support and near lows seen during this fall, and while the sharp drop and rebound has the market modestly tilted back higher, it won’t be long before a generally negative market tone is likely to stop a rebound in its tracks.

Given how high volatility is and the generally directionless nature of the market it’s a short-term traders market, any position held more than a couple of days is at risk of getting reversed. If the market is to continue to rebound it’s unlikely in the very immediate future we see a retest of yesterday’s lows, but as long as they hold then the bias is for a recovery back towards the trend-line off the record high and the area from around 2765 to 2800.

It will require a breakdown below the October low to spur another round of sustained selling into the yearly lows. While those levels and worse look to be in the works, we may see the market continue to work its way back-and-forth between levels and stave off a much sharper decline until the calendar flips to 2019. But as we have seen, just follow the market and the levels as volatility is pretty much rendering any outlook beyond a few days useless.

With global stocks falling sharply, see how this fits into our outlook for the remainder of the year in the Q4 Global Equities Forecast.

S&P 500 Daily Chart (High volatility between levels)

S&P 500 daily chart, high volatility between levels

Dow Jones staved off further losses at confluent support

The bounce in the Dow came from confluent support via recent lows, a trend-line from earlier this year, and the February 2016 trend-line. It did pierce through these levels briefly, but the unstained selling makes it another successful hold. Looking for another bounce to develop up towards the trend-line off the record high which kept the upside limited to start the week.

The convergence between support and the trend-line off the high may be a reason to expect volatility to simmer down as we quickly draw near the end of the year, but the levels are far enough apart that volatility is expected to still remain high for short-term traders. If the convergence in price continues it could lead to an explosive move (likely lower) as we ring in a new year. A break below 24122 will have yearly lows and worse on the board.

Dow Daily Chart (Price converging above support)

Dow daily chart, price converging above support

To learn more about U.S. indices, check out “The Difference between Dow, Nasdaq, and S&P 500: Major Facts & Opportunities.” You can join me every Wednesday at 10 GMT for live analysis on equity indices and commodities, and for the remaining roster of live events, check out the webinar calendar.

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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