US stocks lost their spark in February, with the S&P 500 dropping about 2.5%. But three things on this chart suggest the index is now trading near major technical price support – a kind of imaginary floor that could hold up the price.
First, the index is hovering just above its 200-day moving average (MA, green line): this is a “rolling”, or constantly updating, average of its past 200 days of trading. Notice in the chart how this held the index down in the August and October rallies last year, acting as more of a ceiling than a floor. But now, the price is retesting that line from above – so there’s a chance it could hold US stocks up this time around.
Second, the index’s 200-day MA just so happens to be right around the “golden” 0.618 Fibonacci retracement ratio (yellow) between its December low and its early February high. That signals that the last rally has given up 61.8% of its gains – which is often where you’d at least see some kind of technical bounce.
Third, the volume profile indicator (blue horizontal bars) shows that most of the trading volume has happened when the index has been between about 3,930 and 4,000 points. And the index is in that range (around 3,950) right now.
As they say, buying near support is safer than buying near resistance – because you know where to get out if the support breaks. But if the S&P does manage to hold its support for a while, we could see a bigger buy signal fire on the weekly chart. I wrote more about that here.
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