The S&P 500 cash index (SPX) closed at 1295.22 on Friday, down 73.88 points for a net weekly loss of 5.39% and down 8.7% from this year’s top around 1417.
Last week all three major indexes had breakdown moves. Domestic and external concerns about economic growth and financial markets continue to dominate, and strengthen the selling side. In addition option-related headwinds produced some panic selling moves.
This week we may see a small holiday bounce. $SPX is not far from its support zone (see chart) which was acting as resistance last October and acting as support in January this year. But this bounce may only last for a couple of days, and the next decline could begin after that bounce is exhausted.
SPX Weekly Chart
Technical analysis
Based on the weekly chart (above), SPX not only broke support at the 1340 level, which had acted as resistance on multiple occasions last year, but also fell below the 1312.45 Feb low. The price action was bearish and put the intermediate and long-term outlook in danger.
Based on Wave principles, the first impulse declining move is not complete yet. In other words, the major low is not yet in. But in the short term, the SPX could bounce from the range formed by last October’s high to January’s low of this year.
Right now 1343.13-1357.50 is a major resistance zone. As long as the bounce doesn’t exceed this resistance zone, the short-term downtrend remains intact.
Even though short-term indicators all are in an extremely oversold condition, the major low could be formed several weeks later. External European banking and political uncertainty could continue to drive the market lower.
In U.S. markets, JP Morgan Chase took a substantial credit loss last week; that could be the wake-up call about domestic banking concerns that drives financials to close lower after every short-term bounce.
Monthly resistance 1350 and support 1225; Weekly resistance 1340 and support 1229.
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