On Friday the US markets experienced a sharp sell off across all 3 major stock indices including the S&P 500 which fell 53.5 points or 2.45% on Friday amid fears that a rate rise was coming as soon September or December this year from the FED.
The weekly chart below shows the S&P 500 closed right around the the support level of 2125, which was the previous resistance levels that it closed above back in mid July.
On the weekly chart you can also see that even though the S&P 500 experienced a sharp fall for the week, the current uptrend has not been broken. The trend has been in place since the start of the year when the market fell sharply in the first couple of weeks, touching a low of 1810 on 2 occasions before starting its uptrend.
The next week is key for the S&P 500 for both its support levels and its uptrend. If there is a follow through with further selling over the next week, the next level of support is around the 2035 level shown below with the thick black horizontal line, some 90 points away from the closing price reached on Friday.
So what caused the severe sell off on Friday across nearly every market, including Commodities, Currencies, Bonds and Stocks?
Well it started on Thursday when the ECB at its meeting, failed to indicate that further QE would be provided when the current program ends next year. The selling then continued on Friday and accelerated, when FED official Rosengren indicated that an interest rate hike in September is possible.
The chart below which was created by Zerohedge shows perfectly just how addicted the markets are to QE and low rates. The dotted line in the chart shows when the comments were made, it clearly illustrates the markets were spooked by the possibility of an interest rate hike.
Taking a closer look of the S&P 500 chart over the last 7 months, I have circled Friday's sharp fall as well as the even sharper falls experienced after the Brexit vote back in June. I wanted to give you some context to the volatility experienced on Friday, which the markets have not experienced anything similar since the Brexit Yes vote in the UK.
Similar to the Brexit event where volume spiked in June, the volume on Friday was noticeably above the average daily volume which is also a bearish signal.
The last 2 months has seen the S&P 500 show low volatility with the market going sideways with limited price action. Now the S&P 500 has broken the narrow sideways channel on Friday, the next 2 weeks leading up to FED rate decision on the 22nd September, will most likely be more volatile than the previous last 2 months.
Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.
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I am a private trader and equities investor that loves the trading and investing world, following the markets and everything in between.