Concern about China's slowed economy sparked a sell-off in equity markets on Thursday and Friday. S&P 500 index closed at 1790, down 2.63%, Dow Jones Industrial Average lost 3.52%, and Nasdaq composite decreased 1.65% for the week.
In the blog last week, I said that we most likely would encounter a pull back since S&P 500 index has failed to broke above 1850 for four weeks. From the daily chart below, we can see how this short term pull back came into play: The index tried to break above 1850 three times in the past month and failed them all. While the index failed to make new high, its momentum decreased slowly after peaking in late December. Both momentum indicators, slow STO and MACD can be seen to gradually slide downward, and around January 10, MACD gave out a short term sell signal. Now that a pull back has occurred, let's look at some key levels in the charts. In the daily chart, we can see a short term support at 1770 not far below and the 1700 level supported by the 200 day moving average. In the weekly chart, the 28 week moving average currently stands at 1750. S&P 500 index has bounced off the 28 week moving average several times during this bull trend so it is important to hold this support for trend continuation. Whether this short term pull back will become the turning point of the year-old bull market depends on how the index react to each of these key support levels.
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| Daily Chart of S&P 500 Index |
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| Weekly Chart of S&P 500 Index |
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