Technical Analysis Update: The Lines That Matter for Stocks Today

The markets are down hard this morning.

There are a myriad of reasons. The most important one concerns price: stocks were extremely overbought and overextended. It was time for a correction.

The S&P 500 had just made an explosive move higher out of a rising wedge formation (blue lines in the chart below). This move had brought stocks to a line of major overhead resistance (red line in the chart below).

Chart: Expect a Correction

As I wrote earlier this week, it is highly unlikely stocks would break that red line on the first try. So a correction is expected here.

The question is where it stops.

“Risk Off” Mode in the Markets

I’ve drawn the support lines to watch (green lines in the chart below). As I write this, stocks have already sliced through the first and are testing the second.

Chart: Tracking Stocks Closely

In the big picture, the fact is that the economic shutdown triggered by the COVID-19 panic has done PROFOUND structural damage to the US economy. Stocks have largely ignored this, experiencing a kind of “sugar high” by focusing on the record amounts of liquidity the Fed is providing.

However, stocks now appear to be waking up to the damage. We are entering a “risk off” mode in the markets. The bull market case remains intact – provided we remain above the 50-week moving average shown below.

Chart: The Line in the Sand for a Real Meltdown

That is THE line in the sand for a real meltdown. Provided stocks can remain above this level, the bull market remains intact.

Be safe out here!

Best Regards,

Graham Summers
Editor, Money & Crisis

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Graham Summers

Editor Graham Summers has spent the last 15 years building a reputation as one of the most sought after and highly respected investment strategists on the planet. His work has been read and quoted by former Presidential advisors, award-winning institutional analysts, U.S. Senators, and more. He’s one of the few analysts on the planet to...

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