Strong resistance holds for the S&P 500, the Dow and the DAX
Stock markets broke higher last week and the E-mini S&P made it up to our big target of 1995/2005. This is where we topped, which is not surprising when you consider it represents a 61.8% recovery of the whole move down from the all-time high to the February 2016 low.
This area also, however, includes the 100-day moving average and the 100-week moving average. It’s also just below the 200-day moving average at 2017, as well as the November and December 2015 highs. In a market that is so overbought after a 10% rally, with potentially very negative topping patterns built over the last 18 months, I think there is a very strong chance that heavy selling pressures will resume at this point.
You can see in the weekly chart above how the E-mini S&P bounced just above the 200-week moving average (the red line) for a recovery to the 100-week moving average (the blue line). Whether or not this could be the start of a bear market, of course I cannot be sure, but when you consider that European stocks have been in a bear market for almost a year now it would be foolish to bet against this scenario.
So if I’m right and this is a major turning point what are immediate downside targets for the E-mini S&P?
We have the four-week trendline support at around 1970 so this is the first important level to look for, and a break below 1960 should trigger further selling pressure to target minor support at 1930. A break below the March 2016 low (so far) at 1922 could target 1905/1900 and then support at 1880.
The E-mini Dow Jones has also enjoyed a near four-week recovery of about 10% and made it as far as the 100-day moving average, but so far not quite as high as the 200-day moving average at 17,120. There are several more barriers to further gains in the form of the 61.8% Fibonacci resistance at 17,170 and the 100-week moving average at 17,210 in severely overbought conditions.
If this 10% move is enough to have squeezed out the short positions, as I think, we could see a sell-off back to the four-week trendline support at around 16,850/16,820. A break of this trendline should accelerate moves to the downside targeting 16,700 and 16,460/450. A break below here could take us to quite good short-term support at 16,280/260.
The DAX futures have gained over 10% from the February low at 8690 to reach as far as 9900 this week. This has allowed the market to re-test the 17-month trendline, as you can see in the weekly chart below. When this upward-sloping trendline was broken in the middle of January it was revisited at the beginning of February, and the market then fell another 1150 points to the February low of 8690.
There is no question that the DAX is in an 11-month bear trend and, being so overbought, there is a strong chance we will hold this important trendline resistance for the bear trend to resume.
A break below 9670 would signal a test of three-month downward-sloping trendline support at around 9570/9550. Further losses could target 9380/9370, with a break below last week’s low at 9326 then targeting 9120.
Technical Analyst & Trader
For more information, trading education and offers visit InterTrader Direct
The content of this article is the personal opinion of the author and not InterTrader Direct. The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest. Nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.