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Stocks » S&P 500 index breaks through significant support levels

The S&P 500 index breaks through important support levels

With guidance easing for Netflix and heightened concern about rising interest rates, stock traders are concerned.

Netflix (NFLX) was the first of the FAANG stocks to report fourth quarter results. The results roughly matched analyst forecasts; However, the guide was indigestible for the market! A once beloved stock on the stock market during most of the coronavirus pandemic is now fading as economies begin to open up and people look to get out. Shares fell more than 20%, with top brass forecasting just 2.5 million net new subscribers for the first quarter, below analyst estimates of 5.8 million. Will other big S&P 500 companies, especially stay-at-home stocks, do the same when their earnings are released in the coming weeks?

In addition, stock traders are concerned about the end of the Federal Reserve’s bond buying and looming interest rate hikes. Higher rates discount the value of future cash flows, which would fundamentally lower stock prices and the S&P 500 as a whole. And what about all the supply chain issues? They are still there, so traders are concerned about the impact on the bottom line.

All these problems prompted the S&P 500 to its largest intraday settlement on January 20 since the start of the pandemic. However, the index began to fall aggressively a few weeks ago, after reaching new all-time highs on January 4. The S&P 500 is currently 8% below these all-time highs after crossing the 61.8% Fibonacci retracement from Oct 1, 2021 lows to Jan 4 highs near 4481.5. The price recently broke above the 200-day moving average at 4439.9 and is in horizontal support near 4431.8. Will a quick violation of these levels allow a rebound? The next support level on the daily time frame is near 4377. Note that the RSI is in oversold territory below 30, an indication that the S&P 500 may be ready for a bounce.

S&P 500 chart (daily)

Source: Tradingview, Stone X

Also on the 4-hour chart, the RSI diverges strongly from the price. If price is to bounce, resistance is at previous lows near 4492.2 and then the confluence of a descending trend line and horizontal resistance near 4538. Above, resistance is at Jan 20 highs at 4603.4. However, if the price continues to fall, as mentioned on the daily time frame, the first support is not until 4377. Below is the 161.8% Fibonacci extension from the lows of Dec 20, 2021 to all-time highs near 4364.2, then support levels at 4327.7 and 4272.2.

S&P 500 chart (4 hours)

sp500 indexSource: Tradingview, Stone X

With lower guidance from Netflix and heightened concern about rising interest rates, stock traders are concerned. Was the 8% sell-off in 17 days too big, too fast for the S&P 500? The RSI indicates the possibility of a rebound. But with additional earnings and an FOMC meeting next week, there could be more volatility ahead for the Large Cap Equity Index!

By Joe Perry, CMT, Forex.com » Official site

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Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or solicitation to buy or sell foreign exchange contracts or CFDs. . Although the information contained in this document has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect, or consequential damages that may result from anyone’s reliance on such information. information.

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