The S&P 500 is now testing the critical 1,040/1,050 support level for the 4th time this year. This key support area also represents the neckline from the classic “head and shoulders” pattern indicated in last week’s technical chart (shown below).
If this support level is violated, it would not be surprising to see an imminent and sharp move further to the downside. The 950 level on the S&P 500 represents a 50% retracement of the entire 80%+ rally off the 3/09 lows. Both bulls and bear would both likely agree that this type of pull back would be normal (or even healthy in the big picture, for the bulls).
Clearly, technicals are not the cause nor true drivers of today’s sell off or even the recent volatility, but they do frequently shed light on identifying entry, exit, and stop levels for investors.