Recovering from deeply oversold conditions, the S&P has found some footing, and is making an orderly attempt to recover its losses over the past week. As we can see, a new upward trend channel is developing nicely, exactly what you’d want to see after such a dramatic past two weeks.
We’re retesting some minor resistance around 1895 today; price action has been generally robust. The real test for the sustainability of this nascent move comes in at the 200 day moving average, around 1906, which we cut through on the downside like a hot knife through butter. Price behavior at this level will reveal important indications of the strength of this bounce, and whether we’re likely to make new highs from here, or drop right back down from whence we came. A few weeks of volatile rangebound churning, similar to what we saw in August and September of 2011, are not out of the question after a selloff of this magnitude, especially since the fundamental drivers behind the selloff remain largely unresolved.
Often, green bars on high volume like today’s are not a flash in the pan, and may indicate the potential for significant follow through. Only time and price behavior at key support/resistance levels will tell, and the next major level at which to pause and reassess is 1906.