S&P 500 Correction Update: Price Supports vs Macro Concerns

Andrew Nyquist

It has been a rough month for investors.

The S&P 500 Index fell 6.6% for the month of May, ending each of the four weeks lower than the previous week.

There were several warning signs (I wrote about them here and on twitter) – they included the Russell 2000 and Dow Industrials non-confirmation of the S&P 500 and NASDAQ all-time highs along with waning momentum and market breadth. Crude oil also turned sharply lower along with bond yields.

So is this shaping up to be a run-of-the-mill correction (7-12 percent)? Or something more ominous? The S&P 500 Index is currently off by 6.8%, so the jury is still out. I started “picking” a bit on Friday and plan to buy in increments on further declines.

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Here’s my tweet from Thursday looking at the S&P 500 “daily” chart with comments on DeMark setup count and Fibonacci levels:

S&P 500 “weekly” Chart

The S&P 500 Index has recorded four consecutive “down” weeks and closed just below its 40 week moving average and (200 day moving average).

The next support resides at the .382 Fibonacci level of 2722, followed by a broad price area of 2632 to 2695 that includes the .500 Fibonacci level at 2651.

These potential price supports are weighed against several concerns, including US – China trade tension, recent comments on tariffs (trade) with Mexico, sharply declining bond yields and crude oil. It’s always darkest before dawn. Reminder: stock market prices take these “known” concerns into consideration, which is why I follow price and price indicators.

One scenario that could play out is a momentum low next week, followed by a retest of sorts some time later that may or may not undercut that low… just food for thought, best to take it day by day.

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Twitter: @andrewnyquist

The author has a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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