S&P 500 At Support After 4.67% Drop in SMH

The US stock market declined for a third day in a row yesterday. Dow Jones Industrial Average lost 1.62% while Nasdaq and S&P 500 declined by 2.37% and -1.46% respectively. This has impacted the Asian and European markets today with Nikkei 225 futures in the red by 1.54% Dax futures down by 2.01% at the time of writing.  US equity volatility index VIX shot higher yesterday. VIX moved up to 15.44 as NASDAQ -1.6% was sucking the S&P 500 into negative territory. VIX is well up from the previous session lows 12.59. In proximity of the mid-March range index will be hitting the daily Bollinger Bands.


S&P 500 e-mini futures, daily
RSI is indicating that the weekly S&P trend is getting weaker. Momentum has slowed down since December last year and this has led to RSI creating lower highs while the S&P e-mini futures (ES) made and all-time high in February. ES has now created a lower weekly high and retraced back to the 50% Fibonacci level at 2040.


S&P 500 e-mini futures, daily
ES created a lower high just below the weekly pivot candle and is currently trading at the daily Bollinger Bands and 50% Fibonacci level. This level also coincides with a daily pivot candle from March 13th. Stochastics is getting oversold but a lower high at 2100 is a sign of weakness and could mean that this market moves lower before finding support.


S&P 500 e-mini futures, daily
Here’s another look at the daily chart with a perspective a bit further away. With ES not being able to move above the February high price has created a bearish wedge is currently moving outside the wedge formation. If current support at 2032 breaks it could mean that the trajectory has changed and we will have a new less steep trend channel that defines the moves over the coming weeks. This would bring the grey trendline into play. Also, should the price stay below the black trendline technical picture would deteriorate substantially.


Semiconductor Sector ETF (SMH), Daily
Analysis on US sectors reveals that over the last 10 trading days professional money has been moving away from Financials and Industrials and into Utilities and Health Care stocks. This of course is a bearish fact suggesting that the long only fund managers see the market being weak and feel the need to do what they can to minimize the market impact as they cannot hedge their positions with derivatives. The massive drop in the Semiconductor stocks after a lower high in the index ETF supports this view. However, the support area is getting also relatively close suggesting that the market is not likely to continue in a free fall but will find support over the coming few days. As futures have declined today it is possible that these stocks will open fairly close to the support levels. Picture in the technology and industrials sector ETFs is somewhat similar indicating that they have a bit further to fall before they meet potential support levels.

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S&P 500 e-mini futures, 240 min
The down move paused at the rising trendline but the selling pressure prevailed. ES is now approaching the 2032 low with oscillators deeply in the overbought territory and has reacted higher from the support level.

Conclusion
At the time of writing ES is trading at a support level and it remains to be seen if the traders are willing to seriously bid for the market here. Support levels usually lead to at least some sort of rallies but there needs to be follow-through after the initial reaction. In that sense nearby resistance levels can be problematic as they tend to invite selling. There is a resistance level at 2052 while the violated trendline is at 2050. In addition, the 4.67% drop in the Semiconductor stocks could make the market participants careful today. The wedge formation is pretty much violated after today’s move lower. Only if we see a strong rally higher and a close inside the formation is the technical picture salvaged.