by Michael Tarsala, CMT
Here’s some perspective on the important market levels to watch in coming weeks:
Source: Stockcharts.com
- The top black line on the chart shows support around 1340. It’s important for several reasons. It’s the year lows. It is a key retracement area. Plus, there is volume support at that price, represented by the grey and pink bars on the left side of the chart. Reasons to think we may test this level include the RSI breakdown (at the top of the chart) and the MACD breakdown (at bottom).
- The next key support to hold is in the 1285 to 1300 area. That also is support at the October highs, a retracement area, plus an important volume-at-price level, based on the bars to the left. They indicate prices where there was lots of trading activity in the past. They tend to acts as magnets, attracting prices back to those areas.
There’s more at work besides negative news headlines from Europe. The amount of bullish sentiment has declined in the markets.
Source: Stockcharts.com
Above is a chart I highlighted last week when I wrote a tutorial on the Bullish Percent Index, or BPI. It tracks the number of stocks in a given index that are showing buy signals based on the Point & Figure style of charting, which breaks down moves as a series of Xs and Os. Stockcharts.com has an excellent tutorial on Point and Figure, and a separate one just on BPI.
What this chart is showing is a breakdown in bullishness from very high levels. Note that breakdowns in BPI happened ahead of selloffs in each of the past two years. You see BPI as a series of red and white candles, with the S&P 500 as the superimposed black line.
