Last week we mentioned that a short-term technical rally might be in the cards, this was contingent on the S&P 500 holding up above the 857 (support) to 844 (opening price of rally candle) region. The rationale is that a strong technical rally should not retrace to the opening price or close below support. However, the next trading day, the S&P 500 closed at 844, immediately invalidating the possibility short-term rally.
On Friday’s close, the S&P 500 closed at 825 slightly above support at 818. A close below 804 would takes us down to the 818 to 741 trading band where we believe momentum should carry the S&P 500 towards its 741 November 2008 low.
804 is a short-term low, and usually a close below short-term lows brings in more selling as it indicates that the bulls have insufficient buying power to hold price up.
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