The S&P 500 cash index (SPX) closed at 1276.34 on Friday, down 9.89 points for a net weekly loss of about 0.7%. After last Thursday all three major market indexes showed signs of exhaustion; Friday they all went red, prompted in part by the popular turmoil in the Middle East.
Last week the Fed repeated the first policy statement of the year, with the same tune as before. Interest rates will remain near zero for an extended period and the Fed will continue its bond-buying program. The news was already discounted in the stock market.
This week we could have a continuation low move if the Middle East remains unsettled. The technical condition of the market supports that idea.
Last Friday the S&P 500 (SPX) made a wide range downside trading day — the biggest daily range since May 26, 2010. Trading opened at the highest level of the day and closed at the lowest, a pattern that normally marks a significant short-term trend turning point.
For the short term indicators, SPX broke its 20-day moving average line and closed below it. This week, price may go down further toward the 1260 area if the index does not break above 1278.
For the intermediate term, SPX remains in an uptrend and there is no intermediate selling signal given so far. But a pullback to the support lines below the current price at 1258.50 or the major support zone from 1220-1178 range is very likely if the politics of the Middle East remains turbulent.
If we discount the external events, the short-term overbought condition, which we mentioned so many times before, is leading the current decline. This decline could be ended once the short-term conditions move from overbought to oversold.
The price could reach the intermediate-term major support level before that happens. But until SPX breaches intermediate-term major support level, we treat the current decline as only a short-term pullback or a small correction.
The market volatility index ($VIX) is moving back up to the 20 level; 15 is key support. $VIX is still trading at a significant premium to historical SPX volatility. If it breaks out 21.50 we should see SPX remains under selling pressure
Monthly resistance 1310 and support 1200; Weekly resistance 1290 and support 1250.
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