Trading signal occurs in SELECT model portfolio: Sell FSPTX, Buy FDRXX
As fear for coronavirus deepened, and state governors as well as city majors announced closing of schools, restaurants, and public facilities, stocks suffered another week of steep loss. S&P 500 index fell below its 2018 low and DJIA reached the low not seen since 2016. For the week, S&P 500 index went down 15% to 2304, Dow Jones Industrial Average lost 17.3% , and the technology laden NASDAQ composite index decreased 12.64%.
After another week of high volatility and relentless selling, S&P 500 index has broken the 2400-2350 support. Its momentum indicator, STO, has fallen to 16.4, officially entering the oversold region. To find the major support levels, I plotted the fibonacci retracements for this bull market since 2009 in the picture below. The current 11-year bull market runs from March 2009 to February 2020 with S&P 500 went from 750 to 3400. The first support is the 38% retracement line at 2350, which was broken this week. The next support level is at 2000 with 50% retracement and the third support level is the 61% retracement at 1700. There may be minor supports (eg. 2100 level) in-between these major supports. The index usually stabilizes at one of these support levels before getting on its recovery. While it may be too early to discuss about recovery right now. we did discussed the "W" shape bottoming pattern, and buying when STO comes out of the oversold region before. With the sell-off this intense and this fast, it will take a long period time for the market to recover. We just have to patiently wait for the index to stabilize at the support level, form the bottoming pattern and climb out of the oversold region.
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| Fibonacci analysis of S&P 500 index |
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