Stocks: S&P 500 drops to key level

We have seen some sharp moves in the markets today, with equities, bonds and oil prices all taking a nose dive, while gold, yen and franc have found support as investors sought safety. The EUR/USD briefly dipped below 1.1110 and therefore hit a new low for the year, before bouncing a cool 70 pips. 

Sentiment has remained downbeat amid ongoing concerns over trade wars and slowing economic activity, with the latest manufacturing PMI data from Japan, the Eurozone and US all disappointing expectations today. Stock market bulls will be hoping that the latest falls in government bond yields – amid expectations that interest rates will remain low for longer –  will help encourage yield-seeking investors to buy this latest dip in equity indices. At the time of writing, though, there was no sign of the bulls emerging. But could that change later on in the session or in the coming days?

From a technical point of view, the S&P 500 doesn’t look great at the moment. However it might be too early for us to turn bearish on the markets despite today’s sizeable falls. In fact, the S&P is sitting right at major support around the 2800-2815 area. As can be seen, this area was previously a major resistance zone in Q4 2018 and again in Q1 2019, before the index broke above it. The index has already tested this area couple of times and so far the bulls have supported it, albeit the latest bounce from here last week wasn’t too significant. Today the bears are having another crack at it.

So, it is a question of wait and see now. If the 2800-2815 area breaks and the index holds below it then that would be a bearish outcome. In that event, the S&P might go on to drop to the next key level around 2750, which marks the 200-day average and the head of a daily hammer candle. If support holds here, then a bounce towards the next resistance, which comes in around 2845, would be likely, ahead of 2878/80 area next.