Can The S&P 500 Index Hold Support?

By Jim Donnelly, Olson Global Markets

With quarter-end upon us, the question heading into the second half of the year technically is: Can the S&P 500 Index (SPX) hold support, which is now sitting at 1,050? That level represents two forms of trend line support that just happen to converge within an upward sloping trading range.

At the moment, stochastic studies are falling bearishly, but are nearing an oversold condition on weekly charts. RSI is neutral, but MACD oscillators remain bearishly aligned characterized by an on-going divergence. A solid break below 1,050, if it occurs, could lead to a sizable extension down to channel bottom support now resting in the 960 area.

In the forefront, a worrisome jobs picture combined with dismal housing numbers helped dim the fundamental outlook last week. A set of new financial regulations soon to become law also soured the outlook for both the economy and equity prices, particularly since credit will likely become less available to consumers. Some expect to see conditions to worsen further. Others, on the other hand, suggest that amid all these concerns earnings will show improvement for the past quarter. In addition, most observers have increased their expectation for an extended period of unusually low interest rates.

In any event, a focus on the 1,050 area on the S&P 500 Index (SPX) should provide a reasonably good insight as to the direction of equity prices over the next quarter or two.


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