Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
The freak show that is the current volatility in the markets continued Thursday as stocks opened higher, tested the Wednesday lows, then rallied back up to the opening levels again. Compared with the past two weeks, yesterday’s trading range was on the shorter side, although a 20-handle range in less volatile markets would be considered wild stuff.
As far as the S&P 500 is concerned, on Wednesday it performed a major reversal and now looks as though it may move toward its 50-day simple moving average, currently at the 1,200 level. And the 38% Fibonacci retracement level of the move from the October lows to the October highs sits near 1,210. If and when we hit those levels, we may re-evaluate a potential final push higher into year-end or at least month-end.
On the 30-minute chart of the S&P 500, note the big red bar on Wednesday that pushed the market lower and through the uptrending long white bar. That changed things at least for the very near term.
Also note the bear flag that formed and could lead us to at least hit the 1,215 area before potentially going to 1,210 and then 1,200. Those are reference levels for now, and very near-term ones at that. However, given the almost unprecedented uncertainty currently swaying the markets, we can’t see much further than our own hand. The fog is just too thick.
Since the markets are currently driven by macro factors (i.e., European debt problems), we must get clues from the macro charts.
The prominent EUR/USD found resistance at its 200-day simple moving average and has now also broken the 61.8% Fibonacci retracement level of its most recent rally off the October lows. It does look like this will now lead to lower levels in the cross rate, and that may well be mirrored by equities. The question, of course, is how much lower.
The AUD/USD cross rate also found resistance recently, and while it still is holding near the 50% retracement level of the October rally, it looks like it could weaken further as well. This cross rate is a good proxy to gauge risk appetite in risk assets such as equities and commodities.
All in all, while the near-term picture looks like we may slide a little lower, the bigger picture remains the same: We are in a wide and volatile trading range that sooner or later should resolve lower. The real push to much lower levels, however, may still be months away.
