After the Fall

US markets, and markets around the world generally, have been falling hard for the last few days, taking out many key support levels. Yesterday, we saw the S&P 500 crash down to level not seen since the beginning of the year, and briefly penetrate the lower trend channel dating back to the 2009 and 2011 lows.

While the technical damage was substantial, reaching the low 1820s, the afternoon saw a heroic 40 point rally to end the day, closing near the highs at 1862, and forming a bullish hammer candle with an exceptionally long lower wick.

SPYdaily2014.10.16

It was truly spectacular; the kind of large price movements you rarely see packed into two consecutive sessions, let alone one. With the close above 1860, we managed to hold above both lower trend-channel support at 1840 and the psychologically meaningful 1850 level.

Today’s price action has seen us re-test and hold above both levels, and build on yesterday reversal. Especially important today is the successful bounce off of long term trend-line support (the lower red line in the chart below) in the 1840 range. Holding this range indicates that the bull market originating from 2009 still has some life left in it, and that selling the S&P short, especially from these levels, is premature.

SPY2minute2014.10.16b

The S&P is currently breaking out above yesterday’s highs after some early churning at the 1850 level. With a strong close today, the S&P will likely make a run at resistance around the 200 day moving average. Be especially wary of any moves decisively below 1850 in coming days, which may indicate further selling pressure.

-Will Mogey (Twitter: @wtmogey)

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