The collapse this morning broke through the 1770 level easily. This has brought in more sellers. There is no support level until the 1750 level which is just 5 points lower at the time of my writing this article. The plunge through the 100 day moving average sets up the market for a new lower low. This is the first lower low made since 2012 and shows just how nervous investors are. With the trend definitely stuck lower let’s look for where the next level of support is.
Support At 1750
The 1750 is support from November. It was from that support that stocks pushed higher into December. It marks a strong support line which will have to break if the S&P is to fall to the 200 day exponential moving average (EMA). The next level of strong support in the S&P is actually below the 200 day exponential moving average (EMA). That level is at 1692. There is a good chance that if the 1750 level breaks, investors will hold the market at or just above the 200 day EMA.
As an investor it is important to trade with the trend in a down market. While that trend may be oversold at present, using a stop when holding such products as Ultra Short ETFs and Spy Put Options is a better way to try to secure profits against any bounce backs. Rally backs are almost always sharp and quick to happen. Normally I unload some of my shares in a market downturn in lots. For example if I am holding 1000 shares of an ULTRA SHORT ETF I normally will sell 300 shares at a time on steep drops. In big rallies back I add to my position, buying more of the Ultra Short ETF.
Having patience, taking time to sell and buy small positions is a perfect way to handle the downturn in stocks.
Lower Low Today
The Lower low this morning though breaks the pattern of higher lows which was established in 2013. This is the first break of the pattern of higher lows and it should be watched carefully for signs of further pressure to the downside.
Weekly Initial Unemployment Insurance Claims
Remember too that last week the Weekly Initial Unemployment Insurance Claims rose to 348,000. As it nears the 350,000 mark almost always the market direction has trouble. Later this week we will see what the employment numbers look like but if they surprise and show more weakness after December’s numbers, watch for stocks to continue to stay weak.
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