Markets test important support levels

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The collapse in metals has brought uncertainty and volatility back into the markets. Dow and S&P have declined about 3% from their highs and have come back down to test their support levels. Will this be another short lived correction? will the markets continue grinding upwards towards new highs?

Looking at the hourly candle charts of Dow and S&P we expect at least one more upward bounce to test the short term resistance levels depicted in the following charts.

spx

For the intermediate to long term trend, it is important for the market to hold the critical support levels shown in the charts.

 dow60m

As mentioned in previous posts, the entire rise from last November could very well be over. The first worrying signal of this bearish scenario will come with the downward break of the support levels. There is one bullish scenario that implies we are in an expanding 5th, but for that scenario to remain valid, we need to stay above the support levels.

If the bearish scenario gets a  confirmation with the downward break of the support levels, then we would expect the markets to start a downward correction towards at least the 38% retracement. That could last from a couple of months to even 6 months.

spxD

As shown in the daily charts, the first targets of the impeding correction are found in the zone of the previous 4th waves.

 DOWDAILY

One worrying signal that gives more chances to the bearish scenario, is the pattern the decline from the all time highs has taken so far. It seems that the decline from the all time highs is in 5 waves. This implies an upward pull back near the 61,8% retracement and then a new downward impulsive move that will probably break the support levels.

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Alexandros Yfantis
Alexandros Yfantis
Fascinated by financial markets, studied International Securities Investment and Banking in the UK, works as a Portfolio Manager in Greece and runs a technical analysis website. Enjoys travelling and spending time with his family and preparing for the black belt in Korean Karate.