Major stock markets hold important support levels for now
There was so much negative sentiment last week that it was not the biggest surprise to see stock markets bounce off very important longer-term support levels. The E-mini S&P tested the January low at 1804 and bottomed just a point or so below that. This left a short-term bullish double bottom as we became oversold on the daily chart.
I have a live signals group now with 50 traders following my trades and we were lucky enough to spot this potential bounce in the stock markets on Friday morning. You can see how the E-mini S&P held an important longer-term Fibonacci support at 1787, which is almost exactly where the 200-week moving average (the red line above) is located.
So this is a big support area which has held for the time being, but if this is broken the bear market really does begin. This is when the panic-selling will really start. To me this looks like an expected relief-rally phase where recent losses will consolidate before the next leg lower.
The E-mini Dow Jones also managed to hold a very important longer-term Fibonacci support at 15,531. Although we dipped a little below this level both in January and less so in February, the weekly close was well above that level. In fact, the weekly closes are well above the 200-week moving average (the red line). So at this point we do have a nice short-term bottom formation. Each probe lower in October 2014, August 2015 and January and February of this year has attracted enough buying to leave long lower candlewicks on the weekly chart as prices recovered.
Again, this does look like a period where prices will stabilise to allow oversold conditions to unwind, but longer-term risks are clearly to the downside. The first warning signal for the E-mini Dow Jones will be a weekly close below the 200-week moving average at 15,790. A weekly close below 15,530 would be the next sell signal and again is likely to trigger panic-selling. This is when the market might start to go into freefall.
The E-mini Nasdaq also held an important longer-term Fibonacci support level at 3880/3866. In fact we bottomed perfectly at 3862 and the buyers came piling in as expected. As I write we are testing quite important short-term resistance around 4110/4130. If we were to break above here we meet important longer-term resistance at 4210. There is a good chance this is where the selling will resume again and, of course, a break below the February low would trigger further very heavy selling pressure.
The DAX looks a lot more negative. In January we broke out of the triangle pattern you see in the weekly chart below, and after a re-test of that lower trendline on the bounce at the beginning of February, the market collapsed again.
As I write we are trying to hold above the 200-week moving average at 9100, having closed well below it last week. Unfortunately I really can’t see any reason to be looking to buy this index, despite the fact that we have lost about 40% of the gains from the 2009–2015 bull market.
The next big support area for the DAX futures is a 38.2% Fibonacci support from the whole 12-year rally from 2003 up to 2015. This is located at 8517, but a break below the 2014 low at 8350 should ensure that bears remain in control for the foreseeable future.
Technical Analyst & Trader
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