With all the volatility this week, it is more difficult to assess the technical damage done to the S&P 500 index futures. However, the index has provided investors with a clear technical set-up to determine if the correction is over or if there is more work to do on the downside.
All things considered, most of the damage for the entire week took place on Friday. In the rocky session, the index declined 38.25 handles, which made the decline for the week 58.25 handles. The closing price of 4537.50 is the lowest close for the index since it ended the October 27 session at 4544.40.
It should be noted that from that close the index was higher in the next eight sessions, ending on the November 8 session at 4684. Investors should not be anticipating a repeat performance as the journey north this time will no doubt be met with sellers.
The bogey on the upside is obvious. The faux rally off the open on Friday took the index to 4606.50 and sharply reversed course. With that high being so close to last week’s close (4595.75), it is easy for this technician to declare that if the index can recapture 4600 (which falls in between), the “buy the dip” crowd will prevail once again.
The bogey on the downside is even more obvious. First things first, is that the index needs to hold the fluff from the 40 handle rally in the last ten minutes of the session. If that does not transpire, then it is imperative that the index hold the pairs of lows from Wednesday (4497.75) and the actual low for the week from Friday (4492). As clearly indicated by the chart below, there are limited daily support levels until the pairs of lows at the 4320 area from mid-October.
If investors should have learned anything this week, any investment vehicle that goes quickly through an area can come down even faster. If any example is needed, take a look at the price action on Friday to DocuSign (NASDAQ: DOCU) and Asana Inc. (NYSE: ASAN).
The flight to safety in Friday’s session was evidenced by once again, Johnson & Johnson (NYSE: JNJ) being the biggest gainer of the top components. For the session, the issue added $2.26 or 1.46% to close at $159.38.
That was in sharp contrast to the cash index’s decline of 0.84%.
Perhaps investors should take into consideration that Elon Musk is shedding some of his stake in Tesla Inc. (NASDAQ: TSLA) as the issue was the biggest loser of the top components. For the session, the issue declined $69.83 or 6.4% to close at $1014.67. This puts the issue within striking distance of the recent low for the move $978.60. If that low fails to hold the issue has limited daily support until the $850 area.
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