With the S&P 500 breaking under the critical “make or break” support level into 1,770, let’s update the chart to call our attention to the new downside support targets not just in the S&P 500, but also in the Dow Jones and NASDAQ as well.
We’ll start as usual with the S&P 500 Daily Chart:
If you’ve not done so already, be sure to read my earlier update on the importance of 1,770 and the level planning respective to this area.
We saw the expected support bounce – in fact, price (buyers) rallied up off this support level three times before today’s sharp breakdown.
What we’re seeing now is the expected liquidation (stop-losses and short-sellers stepping in as buyers step out) on the breakdown of this obvious or known support level.
Price now plays impulsively toward the next downside target levels which we can see in the chart above.
The key initial target now that 1,770 is lost is 1,740 which as almost achieved in a single session.
The 1,740 level is a Fibonacci Confluence Target which is actually between the prior price low into 1,745 and the prior price high at 1,730. We typically use prior price swing highs and lows as simple target planning levels in addition to moving averages, Fibonacci Retracements, and trendlines.
One more thing to note for educational purposes – the break under the 1,770 confluence support level put the market into “open air” which is like an air pocket that allowed for rapid movement (and a short-sale trade) down toward the next support target. Price can move quickly – and profits can develop rapidly (as can losses) – on the break of an ‘obvious’ support level.
Let’s set-up the Dow Jones Industrials key levels:
Using similar logic for educational purposes, the break of the key 15,700 price (September high) and Fibonacci support (today) led to the impulsive 200 point swing straight into the next support target overlapping 15,460/15,500.
In addition to the 61.8% Fibonacci level as drawn, price finally tested the rising 200 day SMA which is similar to what occurred in October at 14,800.
The 15,500 level is our current key focal point for the index. Failure here opens the index to further liquidation under 15,400.
The NASDAQ has shown a very strong trending environment with shallow retracements in a persistent uptrend.
A triple-swing negative momentum divergence developed into the 4,250 high and price sharply moved lower from this peak.
Price now is traveling toward the critical support level at the 4,000 index level which will be the next “obvious” (well-referenced) make-or-break support target level.
Failure into 4,000 would set up another “open air” play toward 3,900 which would be a price and dual Fibonacci Confluence support level.
Continue monitoring the immediate support levels in the indexes along with the downside targets that would additionally develop on breakdowns of the current targets.
Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning parameters as we watch a “hold and bounce” or “break and retrace” scenario play out in the near future.
For more daily updates from Corey, visit his blog at Afraid to Trade.com.