This is what happens when a long standing support cracks
Panic Sell off
Trading Rule: When one level cracks – then market races to the next level of support. That support stands at 200 dma.
S&P500
had a dream run for last many many months and it never cracked even
below 100 dma during that period. But with market now cracking below 100
dma: expect total bearish pressure on markets. Today we saw dramatic
selling in US market. Buy the dip crowd will now give way to sell on
rallies crowd. We are going to witness a different market over next few
weeks and hence be careful.
Remember,
when markets break down: No support is good enough to stand the bearish
force. We have been cautioning on a market for a while and now its time
to just stand aside and let the bearish force play itself out.
S&P500 despite all the bearishness is holding up well. Here’s why
Here’s the Daily Chart of S&P500
As you
can see in the chart above: S&P500 seems to have strong Horizontal
support at 1770. First, in October – it took a while for index to break
past 1770 and when it did that in Nov – it never looked back. Post
breakout: index consolidated a lot above 1770 and then in December,
S&P500 managed a stunning recovery from 1767 all the way to 1850.
Now, it has pulled back pretty violently but again seems to be holding
its head above 1770 despite all the bearishness.
That’s not all: the current Horizontal support level also converges with 100 dma: the solid support level of 2013
As you can
see in the chart above: S&P500 during 2013 managed to hold its head
above 100 dma every time index pulled back. It seems to be doing the
same now – trying its best to hold 100 dma. Will it succeed? We will
wait and see. Rest assured breakdown below 100 dma will lead to panic
and S&P500 can slide all the way to 200 dma i.e. 1706. So, that’s
why the current level seems a very interesting place to watch the
market.
OUR PREVIOUS REPORT ON S&P:
http://trendzofmarket.blogspot.in/2014/01/after-brutal-friday-correction-where-is.html
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