A Key Trend Line May Be at Risk

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Just how much damage has been done to the charts so far this month? The answer may be “quite a lot.”

As readers of Market Insights know, a trend line has run beneath the S&P 500 all year. It provided a nice entry in late June, but now it may have turned from long-term support into resistance. This trend line, by the way, began at the lows of early 2016.

You also have the 2800 area. Stocks bounced there in August but so far this month have been trapped below it. Once again, is old support new resistance?

Turning to the moving average convergence/divergence (MACD) oscillator, the index made a higher high in September than in January. However, MACD’s lower high resulted in so-called “bearish divergence.” That may indicate last month’s high was a false breakout.

S&P 500 chart showing levels and selected indicators, as of Thursday's close.
S&P 500 chart showing levels and selected indicators, as of Thursday’s close.

The Nasdaq-100 faces similar patterns, but is also trying to hold a potentially key level around 7000. Another related chart, the Philadelphia Semiconductor Index ($SOX), is sitting at an important level of its own around 1225. Sentiment has been negative in this industry, especially with China appearing to slow.

We’re not predicting a selloff or further downside. After all, seasonality tends to favor the bulls at this time of the year. And, the busy calendar of corporate earnings still has the potential to lift sentiment. This post is just intended to highlight some potentially important technical points to bear in mind as the next few weeks play out.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.