Stock futures are sharply lower to start the week. This comes on the heels of a nasty mid-week decline for the markets last week.
Clearly the market got way ahead of itself. Nothing sobers up the market quicker than a swift 5% decline. The market is still hung over this morning with futures down over 2% overnight... although currently well off those lows.
Overnight the $SPY came right now to former resistance and bounced.. just like it should at support.
It came down to that support right to the penny.
Amazing how that works. That support/resistance goes back over two years.
And to top it off we come into support from the recent recovery rally as well.
The SPY needs to hold this support to keep the fresh record high for $SPY prospects intact.
We've already seen fresh record highs for the NASDAQ. The S&P500 has a lot of work to do to match that feat.
My thoughts concerning the massive recovery was that it was based on hope. And record breaking central bank assistance.
There is a chance we are now entering the reality portion of the new post Virus world.
Clearly there will be some winners and some losers. You are seeing the stock market already start to sort that out.
For an overall market perspective, if we can hold this level of support, it bodes well for a rally up to new record highs for the S&P500 and NASDAQ.
A break of support would set up another 7-10% of downside and from there.. who knows perhaps we do get a test of the March lows... as crazy as that sounds. But I'm not thinking that far ahead just yet. The recent buy the dip mentality of this market, I don't think its gone just yet. And that is the hallmark of a market that wants higher prices. The proverbial drowning a beach ball action.
Today will be a key day. Do we hold support? Do we get a strong move higher today despite the sharply lower overnight action. Do the buyers, who were missing for parts of last week, return today?
Was last nights support test just a kiss goodbye as the market moves to new record highs into the summer?
I think short to medium term the market could move higher and the S&P500 could see fresh record highs. However,, as I have stated previously, I think the cat is out of the bag. The Virus and its short lived market collapse was the Bear Sterns moment for this market.
With that lets see if support holds.... and the price action off that support.
See you in the trading room!