The markets have disregarded for weeks multiple bad news : a sequence of 5 consecutive quarters of negative earnings, weak Q2 GDP and economic data in general especially in the manufacturing, risk a Fed move on the rates, risks linked to the election, … Intervention by Mr Rosengren, a Fed member, coming out on the need to hike rates seems to have been the trigger for a ugly friday on US markets.
SP500 closed at 2127,8 on friday down 2,45% on the day and 3% from its 2193 all time high. Two months of a mix of slight gains and range trading have been wiped out in a few hours . Last 2 months action took place with low volumes and declining momentum which i already mentionned a-was negative .Friday’s kind of move conforts me in my inclination of being always partially hedged after the markets had a substantial move on the upside (SP500 was up 20% since February and 10% since end of june) that looks overextended .
On July 29th i referred to 2135 key level as former resistance and new support. This support has been broken down (see purple ellipse). The move is bearish and barring a recrossing of 2135-2140 on the upside SP500 should be (much) weaker in the next days . Risk on the downside for the short term is at 2080-2100, an heavy activity zone (see parallel green lines) . The blue up trendline originated from February bottom is also a support level at around 2100. The 2080-2100 zone is of big importance and should these levels fail to hold,the immediate target would be the 2000 level.
ACTION : I place a STOP buy order at 2140 to book profit on the Short SP500 initiated on August 24th at 2185. So should the market recross the 2140 level on a closing basis the stance would be more NEUTRAL . If not i would stay short/hedge US markets.