Stock, shock and two smoking barrels

Market turmoil from the US session turned into a global affair as Asian markets dropped and volatility spiked. And, for those who like such conditions, the ‘fun' likely isn't over yet.

Technically, we were out by a day, but we did note a pivotal day on the S&P500 earlier this week. By yesterday's close the S&P500 has plunged -3.3% to clock up its second most bearish session this year. And, with the sea of red across Asia today its clearly not an isolated event. However, as it was ‘only' its 251st most bearish session on record, we know things could have been worse too.

S&P 500

With a quick glance at the daily chart several things jump out which scream ‘bear'; the size of the candle, lack of wicks (upper/lower shadows), annihilation of key support levels and its gap lower. Moreover, the way it opened at the high and closed at the low following the gap is reminiscent of someone willingly jumping from a great height. And, with no evidence of a trough, we'd have to assume bearish momentum probably isn't done just yet.

Having closed below 2796.34 and the April trendline, buy and hold investors are nervously eying the Feb 2016 trendline in hope of support. Bears meanwhile are likely licking their lips at its potential as their next target.

Still, it almost goes without saying the market could be overextended; RSI is its lowest in three years and yesterday's extreme range expansion blew the bottom out of its lower Keltner band. Furthermore, after such a drastic change of sentiment we could find volatility outweighs direction, making the index very difficult to trade over the near-term.

So, if you're late to the party it could be worth waiting for volatility to subside whilst keeping a close eye on related markets. If sentiment truly has turned we'd expect trends to develop on safe-haven markets such as CHF and JPY crosses, which could provide a better-timed entry around the ‘sell everything theme'.

This research is for informational purposes and should not be construed as personal advice. Trading any financial market involves risk. Trading on leverage involves risk of losses greater than deposits.