Major Support For The S&P 500 Index Sits Near 990
Jim Donnelly, Olson Global Markets
With weekly technical oscillators now positioned bearishly, and with plenty of room to go before oversold readings emerge, it appears that the downside “risk” for the S&P 500 Index (SPX) is for a move to the 990 area. That is where both “mid-channel” and “cross” trend line supports converge on intermediate-term charts.
A decline of that sort would fit in with our expectation for a move up to the 83.70 area on the U.S. dollar index (DXY) as well as a move down to the 138 area on the Philadelphia Gold/Silver Sector Index (XAU).
While it would represent a 33% retracement of the rally from the 666.79 low set on March 6, 2009 to the 1,140.41 high scored on January 14, 2010, it would be a little shy of a Fibonacci 38.2% pullback that would target a test of the 966 area. Nevertheless, oversold conditions would likely on present on weekly charts once a move down to 990 is reached. Similarly, oversold conditions should be present on the Philadelphia Gold/Silver Sector Index (XAU) once it declines to the 138 level. Also in line with this scenario would be the expectation of overbought readings reached on the U.S. Dollar Index (DXY) if the 83.70 level is met.
The fundamental backdrop to these expectations should include: a growing unease over European sovereign debt, highlighted by a weakening Euro; growing concerns over domestic municipal debts woes; a continuation of the “run-to-safety” trade into short-term U.S. treasuries; as well as disparate expectations over job growth leading up to the November elections. That said, corporate earnings along with better-than-expected growth (and revisions to growth) as measured by GDP should keep optimists from turning overly gloomy. Thus, it is very likely that the expected moves of the S&P 500 Index (SPX), the U.S. Dollar Index (DXY) and the Philadelphia Gold/Silver Sector Index (XAU) should each represent a correction within the bigger scheme of things.
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