Look for the S&P 500 to Test This Number

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Tuesday’s volatile session ended with a broad decline, with the S&P 500 down 0.9%. The day started strong with the Dow industrials up 1.4% by noon, only to be pummeled and close off 0.7%.

The losses were attributed to three factors: falling oil prices, a weak ruble and heavy profit-taking. Sellers focused on stocks with high earnings estimates, taking the Nasdaq down 1.2%.

Crude futures swung widely during the day, finally settling up $0.02 at $55.93 a barrel.

Foreign money headed for safety as emerging markets sold off on concerns about the steep drop in the ruble and the enormous increase in Russia’s key interest rate to 17%.

Technology stocks were hard hit with Google Inc (GOOGL) and Microsoft Corporation (MSFT) off 3.6% and 3.2%, respectively. Biotech stocks were the subject of heavy profit-taking with iShares NASDAQ Biotechnology Index ETF (IBB) down 1.3%.

Housing starts fell 1.6% in November to a rate of 1.028 million units, which was less than economists’ forecast of 1.040 million. Building permits fell as well. The flash manufacturers purchasing managers’ index for December decreased to 53.7 from 54.7.

At Tuesday’s close, the Dow Jones Industrial Average fell 112 points to 17,069, the S&P 500 lost 17 points at 1,973, the Nasdaq dropped 57 points to 4,548, and the Russell 2000 fell 1 point to 1,139.

The NYSE’s primary market traded over 1 billion shares with total volume of 4.9 billion, and the Nasdaq crossed 2.2 billion shares. On both major exchanges, decliners overcame advancers by about 1.4-to-1.

VIX Chart
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The Volatility S&P 500 (VIX), a contrarian indicator, has doubled in just seven sessions.

S&P 500 Chart
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Chart Key

The S&P 500 closed within a fraction of its low of the day. In the morning, this major index moved up and pierced its 50-day moving average. By noon, it had reached its zenith, and by mid-afternoon, it had fallen back through the 50-day as it succumbed to heavy selling.

A Fibonacci retracement of 50% is just 24 points from Tuesday’s close, at 1,949, and below that is the important 200-day moving average at 1,947.

Conclusion

Tuesday’s broad decline with the highest volume in months is almost sure to thrust the S&P 500 down to test its Fibonacci number, as well as its 200-day moving average. It may even accomplish both in the morning.

But short sellers should be sensitive to the high probability of an upside reversal after such a forceful sell-off, especially in light of the Federal Reserve’s conclusion to its two-day policy meeting.

With oil falling and the ruble in trouble, I doubt the Fed will want to talk about raising interest rates. Traders should aggressively use stop-loss orders while longer-term investors could begin to pick away at bargains, especially in the tech and biotech arena.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2014/12/daily-market-outlook-look-sp-500-test-1949/.

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