Shares took it on the chin final week, slicing by way of vital assist at 4,480 on the S&P 500. All informed, this sell-off has erased six months’ value of positive aspects bringing shares again to the degrees of final August 2021.
The massive query for traders this week is: the place can we go from right here?
At the start, the market is deeply oversold. The S&P 500 is effectively beneath the decrease Bollinger Band on its day by day chart. The market can be displaying the bottom relative power index (RSI) studying for the reason that March 2020 crash. Sure, the market is as oversold because it was in the course of the first wave of the worldwide pandemic.
This implies a bounce is coming. It’s extremely unlikely shares go straight down from right here. As an alternative, we’re prone to get a rally into this week’s FOMC on Wednesday, with the S&P 500 revisiting former assist, if not breaking a bit of above it. I’ve drawn this out on the chart beneath.
What occurs there may be key. If shares maintain these positive aspects, then this latest drop was possible only a plain vanilla sell-off to take out the surplus froth within the markets.
Nevertheless, if, as a substitute of holding these positive aspects, shares roll over and start falling once more, then we’re possible initially of a extra pronounced breakdown and presumably a brand new bear market.
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