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Market Ready to Test 200 Day MA Support

sp-with-fib1

Well, we remained above support at 908 today (the 200 day moving average) but we are definitely in turmoil. Part of this turmoil is that we are in options expiration week and it always presents some volatile moves in the averages.

What can we expect? We very well could just churn in the trading range delineated by the 200-day moving average on the downside and 950 on the upside. However, the breadth index is showing that the short-term direction of the market is likely down.

nyad-breadth-index

Given that, we could very well see the market pull back to the 850 level on the S&P 500 index. If you look at the chart at the top of the page, you will see that I’ve drawn a box around a few days of consolidation in the 850 area. If we break the 908 level and close below it, we could easily see another 5% pull back in the averages to that 850 level.

However, since its options expiration week, anything can happen. All of the monetary stimulus in the economy from the Fed (who engaged in further Quantitative Easing today by buying another $6.4 Billion in treasury notes) does matter and will provide a cushion against the downside. At this point, I think the correction will be subdued – that changes IF we have news of a worsening recession instead of a recession that is nearing the end. Until that happens, we’ll continue to invest on Bernankes side.

Mark