Stocks markets came under serious pressure last week and many indexes broke below important support levels. The Nasdaq has dropped 236 points in the lunar red period that just ended, making it the worst red period since we started this blog. In the next weeks we have to watch how the market recovers from this, if at all.
Let’s have a look at the S&P 500 chart (click for larger image):
I have been pointing out for weeks that the market is at a high risk point. By now several long term uptrend lines have been broken, and the S&P 500 is testing its August lows. If that level doesn’t hold, then the February lows could become the next stop.
Technically, my Earl2 is still dropping fast, with no signs of bottoming out yet. The faster Earl and MoM are trying to build a base, so a rebound rally could start any day. With a lunar green period starting I think we will get a rebound rally from these levels. The question will be whether the market can repair the damage that has been done. Or will investors use any bounce to lighten up on stocks in their portfolio? We will find out soon.
My key reversal levels are now bearish for many markets. This is a different trading environment than the one we have become used to in recent years. The market can come back from this kind of pullback and go on to new highs, but it can also be the start of a bigger decline. It is just too early to tell at this point. We have to wait for more positive signals.