Stock indices faced a tough day on Thursday, with any intraday recoveries being quickly sold off. Looking at potential support levels for the S&P 500 (SPX), there appears to be a 78.6% retracement of the rally from the August 2024 lows pointing to 5,339. Additionally, an 88.2% retracement is noted at 5,240. Considering the double top formation, we might witness a move down to the low 5,200s. Although the SPX hit a corrective closing low on Wednesday, there are bullish breadth divergences evident from the percentage of SPX stocks above their 20-, 50-, and 200-day moving averages. Moreover, the 14-day relative strength index (RSI) has shown a bullish momentum divergence after entering oversold areas. While these momentum and breadth divergences suggest a potential trend reversal, ultimately, price movement will confirm the trend.
Looking at the SPX weekly chart, there is trendline support, along with an initial 38.2% retracement of the bull market that began in October 2022, lying between 5,130 and 5,250. It’s crucial for the longer-term momentum, represented by the 43-week RSI, to maintain at least 45% because further weekly momentum declines can often lead to negative market events. Until now, the price has been trailing the lower weekly Bollinger Band downward. For an initial buy signal, the SPX needs to move back above the lower band and then break through the middle band for confirmation.
On Thursday, we witnessed the SPX dive 4.8%, marking its most significant single-day drop since June 2020.
