Monday’s hard selloff was a jarring start to the New Year, but it didn’t do a lot of technical damage.
Most importantly, the index held two levels.
First, its low of 3663 matched a rising trendline in place since mid-November. (It began with the first pullback after the breakout to new highs.)
Second, SPX managed to close slightly above 3700. While this level has no clear significance on the chart, it’s a potentially important psychological level.
Some intermarket conditions are supportive of the S&P 500. First, bond prices remain under pressure. More downside in bonds would lift yields and potentially help financials and cyclicals.
Second, oil is rallying and today pushed above $50 a barrel for the first time in 10 months.
The sector mix also has a bullish bent because cyclical and “risk-on” groups are gaining (especially energy, materials and industrials). Meanwhile safe havens like utilities and consumer staples are down. That reflects confidence in the economic rebound. (Today’s ISM manufacturing report crushed estimates and jobless claims have recently been better than feared.)
Despite these positives, it’s important to recognize that yesterday’s drop created a large bearish engulfing candle on SPX (with high volume). Even if it doesn’t cause a reversal, this pattern could hold the broader market in check for several weeks. More rotation could be in store, with investors shifting away from large growth names in favor of smaller cyclicals.
TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
Most importantly, the index held two levels.
First, its low of 3663 matched a rising trendline in place since mid-November. (It began with the first pullback after the breakout to new highs.)
Second, SPX managed to close slightly above 3700. While this level has no clear significance on the chart, it’s a potentially important psychological level.
Some intermarket conditions are supportive of the S&P 500. First, bond prices remain under pressure. More downside in bonds would lift yields and potentially help financials and cyclicals.
Second, oil is rallying and today pushed above $50 a barrel for the first time in 10 months.
The sector mix also has a bullish bent because cyclical and “risk-on” groups are gaining (especially energy, materials and industrials). Meanwhile safe havens like utilities and consumer staples are down. That reflects confidence in the economic rebound. (Today’s ISM manufacturing report crushed estimates and jobless claims have recently been better than feared.)
Despite these positives, it’s important to recognize that yesterday’s drop created a large bearish engulfing candle on SPX (with high volume). Even if it doesn’t cause a reversal, this pattern could hold the broader market in check for several weeks. More rotation could be in store, with investors shifting away from large growth names in favor of smaller cyclicals.
TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
