On Friday, the S&P 500 (SPY) broke an important support level by closing under the 50-day moving average and this week's low. While this was an important level to break, it was also a very clean and obvious place for the SPY to fall through.
For the past 6 trading days, we've seen large daily ranges showing increased volatility and a fierce battle between bulls and bears. For most of those days, the market was neither pushing higher nor completely breaking down. However, Friday was the straw that broke the market's back, as the SPY broke the low of 9/14 at $443.22 and the 50-DMA at $442.73. Because these prices were close to each other and obvious support levels, these areas could have been targeted by institutions looking to load up on shares.
An example of targeted support or stops can be seen when a big support level is hit, followed by a quick reversal. While this is very frustrating price action to trade, investors should know that market makers and large institutions often search for these areas. They look for obvious price levels where people will place their stops and try to push the market towards those prices. Hitting these stop areas is a great way for large institutions to accumulate stock at a better price.
With that said, this past week of trading has been very sloppy and, while Friday's clean break could be setting up a reversal for Monday, we should stay very cautious as we don't want to buy a falling knife. Therefore, if the market is looking to turn around Monday or later in the week, watch SPY's price to clear back over the 50-DMA and over the low of 9/14 at $443.22.
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- S&P 500 (SPY): Needs to get back over 443.22.
- Russell 2000 (IWM): Held the 50-DMA at 221.30.
- Dow (DIA): Like this to get back over 347.31 area.
- Nasdaq (QQQ): Next support the 369.63.
- KRE (Regional Banks): Dojo day. 63.55 support area.
- SMH (Semiconductors): 263.86 support.
- IYT (Transportation): Like this to hold over 245.48.
- IBB (Biotechnology): 168.89 support from the 50-DMA.
- XRT (Retail): Tested 50-DMA at 95.06.
Assistant Director of Trading Research and Education