Monday, April 7, 2014

S&P's vicious sell-off

By Erik Tatje

E-mini S&P 500 (CME:ES14)

Following an early morning rally that produced new all-time highs in the S&P 500 on Friday, the market sold off viciously, giving back all of the weeks’ previous gains. Currently, prices are probing for support around the 1855.50 pivot on the chart. Despite the intermediate bias that still remains in play, near-term momentum in the S&P has reversed course and will remain bearish until price can gather itself again.

Look for the 1855.50 pivot to offer potential support to price, followed by 1842.00 and 1837.50. The RSI has reverted back to the 20 pivot, indicating that the S&P 500 may be in the process of transitioning lower. If this is the case, corrective rallies in this market could top out around the 60 reading on the RSI, highlighting the near-term bearish momentum in the marketplace. Traders should keep an eye on the 1823.25 level as well as the previously mentioned support pivots. A confirmed breakdown below the 1823.25 pivot would signal a new low in the S&P 500 and could alter the intermediate-term directional bias in the U.S. Dollar Index.

E-mini S&P 500, 30-minute Bar Chart (e-Signal)

U.S Dollar Index (NYBOT:DXH14)

The USD closed out last week on a strong note and looks to capitalize on the positive momentum heading into this week’s trading. Price recently rejected from the previous peak on 2/27 around the 80.70 pivot on the chart. However, the recent rejection doesn’t seem to have threatened the underlying bullish sentiment as the higher low, higher high structure remains unchanged. Traders should monitor the area around 80.416 as this could provide significant support to price and potentially offer bullish traders a valid entry level. Any sustained weakness below this area on the chart could dip as far as 80.123 – 80.160 before finding additional support on the chart. The directional bias in the U.S. Dollar Index will likely remain positive so long as price can avoid falling below 80.055 and the probabilities appear to favor the long side of this market.

U.S. Dollar Index, 30-minute Bar Chart (e-Signal)

Gold (COMEX:GCK14)

With stocks pulling back sharply into the close on Friday, gold received a temporary pause from the selling pressure which has governed price action over the past month. At this point, there is no reason to believe that the recent strength in gold is anything more than a corrective rally; however, if prices can hold above the 1300.0 pivot on the chart, there could still be some additional upside potential in the gold. In the event that gold continues higher, traders should key in on the 1315 – 1317 Fibonacci Confluence Zone as this area will likely provide significant resistance to any strength in price. Until price can produce a relatively higher high above the previously mentioned area on the chart, the directional bias in the Gold will continue to favor the bear campaign.

Gold 30-minute, Bar Chart (e-Signal)

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