Now that the SP500 has lost trendline support and fallen out of the uptrend channel we can start looking for lower support levels. Friday saw price close lower on coronavirus fears which was anticipated coming into the trading week as the virus continues to bring China's local economy to a slowdown, and in turn should begin to send ripples through the global economy given China's role in global production. Price managed to hold just above Support 1 on Friday which stems from the yearly low made in early January. I expect the selling to continue next week and Support 1 to fail taking price down to Support 2 which stems from a resistance level made in November 2019(previous resistance becomes support). I also expect Support 2 to fail bringing price down to Support 3 which is the most likely target price will reach before support is found. Support 3 stems from the low in price made in early December and is also roughly -5% from the trendline break which the the percent loss anticipated in the previous SP500 chart shared prior to price breaking down and out of the uptrend channel. Should S3 fail to hold price, S4 is just below it near the $3,000 level and stems from two hard resistance levels seen in July and September 2019. Should S4 fail to hold as support it would likely mean that the market rally is in jeopardy and that the push in 2020 to new all-time highs was a blow-off top rather than uptrend continuation.
The PPO indicator below the price chart is in a bearish cross and declining indicating a loss in upward momentum for price. We'll likely see this indicator continue to fall and most likely take a dip below the 0 level(above 0 bullish, below 0 bearish) indicating a possible shift to downward price momentum.
The RSI is declining and currently testing its centerline at the 50 level(above 50 bullish momentum, below 50 bearish momentum). This indicator is also showing a slowdown in upward price momentum, a further dip below the centerline will be a further indication of price weakness.
Worth noting is that the Federal Reserve held the first FOMC meeting of 2020 this past week where they left interest rates unchanged. I feel this in itself was probably cause enough for traders to begin selling as economic indicators have begun to show signs of a slowdown in the US economy. The next FOMC meeting isn't until mid-March which gives traders plenty of time to send prices lower sending a clear message to the Federal Reserve: more liquidity, lower rates. This 10-year bull rally hasn't been fueled by organic growth in the economy, but rather cheap money and lots of it. Take away the cheap money and you take away traders incentive to buy.
The PPO indicator below the price chart is in a bearish cross and declining indicating a loss in upward momentum for price. We'll likely see this indicator continue to fall and most likely take a dip below the 0 level(above 0 bullish, below 0 bearish) indicating a possible shift to downward price momentum.
The RSI is declining and currently testing its centerline at the 50 level(above 50 bullish momentum, below 50 bearish momentum). This indicator is also showing a slowdown in upward price momentum, a further dip below the centerline will be a further indication of price weakness.
Worth noting is that the Federal Reserve held the first FOMC meeting of 2020 this past week where they left interest rates unchanged. I feel this in itself was probably cause enough for traders to begin selling as economic indicators have begun to show signs of a slowdown in the US economy. The next FOMC meeting isn't until mid-March which gives traders plenty of time to send prices lower sending a clear message to the Federal Reserve: more liquidity, lower rates. This 10-year bull rally hasn't been fueled by organic growth in the economy, but rather cheap money and lots of it. Take away the cheap money and you take away traders incentive to buy.