Markets in Meltdown
26 October 2023
As we approach the end of October, the spotlight is firmly cast upon indices, most notably the S&P 500. The latter half of this month has witnessed a tumultuous descent, with the stock market seeing red almost daily. The situation is further exacerbated by crucial supports that are now teetering on the edge.
Zooming in on the S&P 500, one can't help but notice the striking "head and shoulders" pattern, vividly highlighted in yellow on the chart. This classic reversal pattern, long forewarning of bearish momentum, has played out as expected, catalyzing a sharp decline. The real quandary for traders began when the index slipped below the red-colored neckline of this pattern. A mid-October revisit to this very neckline cemented its status as a formidable resistance, leading to a steep selloff thereafter.
Adding fuel to the fire was another significant event around the 20th of October. As the S&P 500 continued its descent, it breached a critical black uptrend line. This move further validated the burgeoning bearish sentiment. Currently, traders are casting a wary eye on another pivotal juncture - the orange zone around the 38.2 Fibonacci level. A breach below this point would add another feather in the cap for bears, corroborating the sell signal.
Where does this leave the S&P 500? A plausible destination for the index seems to be the 50% Fibonacci level, a region that historically played the dual role of resistance in March and support during April and May. If the index conclusively closes below the defining orange area, a move towards this 50% Fibonacci level appears almost inevitable.