Earlier this week, we suggested that the S&P could experience some selling into the end of the month; and yesterday, although the S&P 500 made new all-time highs at 2480.50, it then turned into a day of selling, trading down to 2457.
The chart below shows various retracement levels for the current month’s range, showing that the S&P 500 has retraced almost one third of July’s gains.
Yesterday, a certain bank analyst who had great predictions two years ago made a prediction that the market “may be nearing a top,” although this was relatively vague; and Dow Transports also led the way for Dow theorists to suggest this market was topping out. However, we think that that is all noise for now, and that the bears will have to do more to confirm a trend change; otherwise, what we are seeing is just month-end selling, similar to the selling off that occurred at the end of June.
We have made it no secret that we prefer buying the dips in this market, and that is still the case. There are reasons to be concerned that this market may be turning, but if the market turns toward a bearish trend, sellers must still do some things to confirm a trend change. This would start by sellers pushing this index below the old high of 2451.50 and last week’s low of 2448, indicated by the grey shaded at the middle of the chart.
In the event that prices continue to sell into the end of the month, we have identified several areas that we will watch for buying opportunities of support levels. The first is yesterday’s 2457 low, which we give a one star rating. The next area is the region already mentioned from 2451.50 to 2448, which we favor the most and give a three (out of three) star rating. This is the line in the sand that bulls need to protect. Lastly, the 50% retracement of this month’s range, which comes in at 2442.75, could be the last line of defense for bulls, and we give this level a two (out of three) star rating. It would take quite a significant move for this market to pull back more than 50% of its monthly range in the last three days of the month when the month has performed so well.