| The market is in the tank again and a common question floating around is obviously “where is the bottom?” While nobody knows that answer for sure, the charts are one place to look for clues. I decided to use a longer-term chart going back two years to try and find an answer. He is my take on where buyers could step in.
The most obvious level of support is the 1120-1125 level on the S&P 500, which seems likely to be tested in the next few days. It is important to note that this would be the third test of this level, which many technicians consider to be unlikely to hold. There is a saying that there are no such things as triple bottoms. I am personally unsure about this, but felt that it was necessary to state. If this level is breached, the next area of major support is the 1050 level, which is where the market bottomed following the summer swoon of 2010. If that level is broken, look out below. The next level of support doesn’t kick in until the low 900’s. Coincidentally or not, the 900 level is where I have heard a few analysts chime in as a potential worst-case bottom in case we endure another recession. I would agree with that. Technicals Matter Now I mentioned a piece last week that valuation is not that important when short-term returns are concerned. Thus, cheap valuations will not be enough to stem the tide of selling in the market. However, areas of technical support matter greatly, whether you believe in them or not. These are proven levels where buyers have stepped in and will likely do so again. Again, I never recommend using anything in a vacuum, but on the way down, technical analysis is a wonderful tool. |
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