Market Nears Last-Ditch Support Levels

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Displeased by what they perceived as an overly hawkish Federal Reserve, traders quickly turned a hopeful day into a rather bearish one, inflicting more technical damage than may be evident with just a quick glance.

On Wednesday, stocks fells precipitously on the heels of the FOMC’s lack of willingness to alter its broad suggestion that it will be raising interest rates later this year.

Against a backdrop of a surprisingly disappointing Q4 earnings season so far and swelling economic trouble overseas, the market collectively presumed Janet Yellen and her cohorts would turn somewhat dovish. They’re not, though they are ultimately remaining “patient” with the timing of a rate hike.

Several big names posted quarterly results on Wednesday, including QUALCOMM, Inc. (NASDAQ:QCOM) and Facebook Inc (NASDAQ:FB). QCOM fell 1.1% after it dialed down its outlook, while FB rose 0.6% after it topped estimates.

Crude oil plunged 4% to $44.45 per barrel, 30-year Treasury yields dropped to a record low of 2.29%, and gold fell slightly to close at $1,285.90 per ounce.

The U.S. dollar index ticked higher to 94.63. That’s within striking distance of Monday’s multiyear high close of 94.80.

NYSE advancers outpaced decliners by 2.8-to-1, while the Nasdaq saw 3.2 decliners for every stock that advanced. Volume for both exchanges was above average, though not especially remarkable.

S&P 500 Chart
Click to Enlarge

Chart Key

While the S&P 500’s 1.4% decline to a close of 2,002.16 was bruising, it has snapped back from worse. The bulls will argue that the index fell similarly in mid-December, early January, and mid-January, and none of those setbacks put a bigger sell-off into motion.

Truth be told, that bullish case holds some water. But there is a different technical context in place now that didn’t apply to the prior three pullbacks.

This time, the strong sell-off materialized in the shadow of the 20-day moving average’s cross under the 50-day moving average. Moreover, both are now sloped downward for the first time since October. If nothing else, this suggests the short-term tide has already shifted toward bearishness.

The chart of the Dow Jones Industrial Average looks similar to that of the S&P 500, and though the Nasdaq Composite didn’t move to lower lows today, it’s not looking any healthier. The same goes for the Russell 2000.

Russell 2000 Chart

Though it looked as if the Russell 2000 was going to clear a minor resistance level at 1,202, even that feat is now in question.

Conclusion

While there are still a handful of ways the market could yank itself away from the edge of a cliff, they seem increasingly out of reach. One indication of a breakout/recovery would be a move in the Russell 2000 above 1,202. For the S&P 500, the key bullish clue to look for is a move above the ceiling at 2,065.

We’re most definitely in a range-bound state though, and traders would be wise to take a “show me first” attitude before trusting any bullishness. The same is true for a breakdown, of course. The S&P 500 still has a huge floor at 2,000 propping it up, while the Russell 2000 could find support at 1,151.

Most of the indices have already made key lower lows and/or lower highs though. The pressure is on the bulls to undo the damage rather than the other way around. Given the bigger momentum and the fact that we’re now seeing short-term moving averages pointed downward, any break under the aforementioned support levels are likely to (finally) be bigger clues of a correction.

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.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2015/01/daily-market-outlook-sp-500-russell-2000-near-last-support/.

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