Last October when U.S. equity markets were experiencing its first significant correction since 2011, we pointed out an interesting technical support area. The 50-week simple moving average had served as support on a closing basis since the 2011 correction. It was breached a couple of times on the weekly bars but managed to settle at or above it each time.
Last October, despite the strength of the sell-off, the S&Ps on the week of Oct. 13 managed to rally and close basically at the 50-week moving average despite breaching in by 70 points (see chart).
Last week, however, the S&P 500 blew away that level on Friday’s close (second to last bar on above chart), which was a strong technical sell signal that ignited the overnight sell-off on Sunday and confirmed a more serious correction than that of last October.
It begs the question, where is the next level of support?
The strong sell-off also breached the 100-week moving average, which is sitting at roughly1956. The 100-week SMA was also last breached during the 2011 correction. A close below that level on Friday would signal greater technical weakness. The market is currently well-below that level and would need a strong rally to settle at or above it. There is also the October 2014 low to offer support (1813) and the trendline drawn from the March 2009 market bottom.
What the move has show is that market can change quickly.
I bigger concern may be the overall volaitlity and the ability of retail traders to stay in the market. Below is a 60-minute chart of the E-mini S&P. The average true range (bottom blue line) has more than quadrupled in the last week from where it had been for most of the summer. Few traders can withstand those types of swings.