CHART: Making sense of the sell-off

Crux noteStansberry NewsWire is your best source for real-time market updates from some of Wall Street’s most connected financial minds. Best of all – it’s FREE! Sign up today to receive daily alerts, trading tips, and more via the NewsWire website or right on your phone. Click here to join

Today’s exclusive chart analysis comes straight from one of the NewsWire‘s best analysts. 

From Greg Diamond of Stansberry NewsWire:

The massive sell-off is related to sentiment and the highs and lows in both equity and cash holdings. If you combine low cash levels and complacency among equity investors, then this sell-off makes sense. The move is incredible – to say the least – but let’s take a step back and just focus on stock prices.

Here is a long-term chart of the S&P 500 Index going back to November 2016 lows when President Donald Trump was elected:

spx_trend

Prices have declined to just above the 100-day moving average (yellow line), which is around 2,630. The long-term trend line (white dash), which serves as the uptrend support in this bull market since Trump’s election, falls around 2,615-2,620.

So we are looking at the first level of major support between 2,615 and 2,630.

Next comes the first major support level (the blue box) of 61.8% of 2,590-2,595, which is from the breakout lows in August of last year.

If the decline really becomes a waterfall event, then 2,570 comes into play… followed by 2,533, which is the 200-day moving average (red line). A significant break below this level will start getting institutional-money programs to hit the sell button – a major change in the long-term trend of equities.

However… look at the relative strength index (“RSI”) at the bottom of the chart. Prices are incredibly oversold. In fact, the last time the indicator reached this level was during the lows around the presidential election (red circles).

I’m expecting whipsaw moves with such oversold levels on the RSI and major support levels coming into play this week.

Keep these levels on your radar.

× Subscribe to Crux
Want more posts like these?
Like us on Facebook?
Crux Contributors