Stock markets hit important longer-term support levels – can we recover from here?
I don’t need to go into an explanation of how stock markets have suffered a serious setback in the past few weeks. But I am going to focus on some important support levels and targets that have been hit over the past 24 hours. I do think there is a very good chance that this leg of the new bear trend could be ending and we could experience quite a strong bounce into the end of October.
To explain further let’s examine some of the evidence on the charts. Below is a weekly chart of the Emini S&P. The pink upward-sloping trendline is plotted from a low back in July 2011 and therefore marks a significantly long-term trend dating back over three years. So definitely worth paying attention to. As you can see so far it has held with a very strong bounce almost exactly off this point yesterday on Wednesday 15 October.
This trendline is around the 1822 area and we also have important support from mid-April lows at 1807/1803. A break below this area would suggest I am wrong and that this stock market would then be likely to head significantly lower.
The Russell 2000 dropped significantly last week along with the other stock markets but this week has been extremely stable and, in fact, open to range trading. If you were to look at this market on its own you would be totally unaware of the collapse experienced in many other global markets this week. How come this has held up after plunging so heavily last week? The weekly chart below offers an explanation. The pink upward-sloping trendline starts from a low in October 2011, so again a three-year trendline that we must pay attention to. You can see that this has held perfectly throughout the whole week and stopped further significant losses in this market despite the fact that the Emini S&P, Emini Nasdaq & Emini Dow Jones have all taken very big tumbles.
Next we will take a look at the Emini Nasdaq weekly chart and, although we have broken a much shorter-term trendline (the upper pink line you see in the chart below), we are testing important Fibonacci 61.8% support at 3680. I have drawn Fibonacci lines up to the high at 4128 to calculate this important longer-term support line.
The last US market I will examine is the Emini Dow Jones. I have used a monthly chart here to show how, using Fibonacci lines going back to October 2011 (the same period for those bull trendlines in the examples above), gives us our first longer-term support level just above the 15,700 level. As I write this market is hovering just above this level so far this week.
Clearly the stock markets in the USA have fallen to some extremely important support levels and with the market so oversold one has to wonder if this is a good buying opportunity. If these levels to hold the markets are clearly managing to remain in the three-year bull trend this must be seen by many as the chance to shop for some bargains.
I will finish up by looking a little closer to home at the FTSE 100 December future. I have drawn Fibonacci lines going right back to the very start of this bull market in March 2009. Our first 23.6% Fibonacci support lies at 6090. Although we have dipped just a little below that as I write (as far as 6040) we are still in with a chance of closing the week above 6090 tomorrow night. The 6090 level also coincides with the 200-week moving average which adds significance to this area and if bulls are to stage a recovery in the second half of October they must ensure that we close above here on Friday night.
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