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Stock Market Turning? Look For These Support Levels

Stock-Markets / Stock Markets 2020 Oct 29, 2020 - 02:17 PM GMT

By: Chris_Vermeulen

Stock-Markets

The breakdown in the US stock markets early on Monday, October 26, was more about investor expectations and a transitioning away from risk ahead of the US Elections than any other factor.  No new stimulus deal being reached in addition to a surge in US COVID-19 cases recently suggests another contraction in the US economy may not be too far away.  Additionally, as news bombs seem to be nearly an hourly event, investors and traders are suddenly much more uncertain of the outcome of the US elections which are nearly 7 days away.


KEY FACTORS DRIVING ANOTHER RETEST OF RECENT SUPPORT

There are three key factors putting downward pressure on equities today:

  1. Risk off: Risk capital is being pulled away from high-flying sectors in an attempt to eliminate excessive drawdowns as a result of extreme volatility throughout the election event.
  2. COVID-19 Cases Surge: Heading into the early Fall season, COVID-19 cases in the US are starting to rise again. This sets up the expectation that travel, consumer spending and all levels of consumer activity may take another hit just before the holiday season.
  3. Changing Expectations: As the election nears, skilled traders are suddenly realizing their expectations may not be as “solid” as many thought 30 days ago. This requires an immediate change in planning/structure.

These new environmental aspects related to the capital markets suggest that a “repricing event” is likely to continue before the November 3 election day.  The repricing event will likely attempt to test lower support levels in the markets – possibly attempting to reach recent Major Support levels. My team and I outline the support levels on the 240 Minute and Daily S&P 500 E-Mini Futures (ES) charts.  Read on to learn more.

240-MINUTE ES SUPPORT LEVEL

The first chart below is the 240 minute ES chart.  It highlights three key support levels.  The Broken Support level is the most recent support level that was acting as a floor for price – until today.  Minor support exists just below that level between $3370~$3400.  Below that, we find Major support near $3325~$3355.

Our research team believes the current price breakdown, or repricing of risk, is an impulse price trend that will end fairly quickly.  Of course, we could find other support levels below these current levels, but we believe the current downside price trend is simply an impulse price trend related to the three components listed above.  We believe the Major support level will act as a strong price floor over the next 5+ days and potentially set up a substantial price bottom/base near the election day.

DAILY ES SUPPORT LEVEL

This Daily ES chart shows similar support levels, yet the Major Support level adjusted a bit lower – targeting levels near $3200~$3270.  The Minor support level on this Daily chart is aligned with the Minor support level on the 240 minute chart – which suggests this Minor support level may provide a reasonable price floor in the immediate future.  Otherwise, the deeper Major support level is likely to prompt a price bottom/base.

We believe traders and investors have already priced into the markets suitable expectations related to information available to them before these new COVID and other data points became available.  Now, as there is an immediacy related to adjusting positions and allocation level because of these new concerns, traders are “repricing” perceived risks and that results in what we call an “impulse price move”.  Structurally, not much has changed from the past few weeks in terms of economic data/expectations.  Traders are simply pulling risk away from the markets in an attempt to prepare for unknowns ahead of the November elections.

This means that capital will be primed and ready to redeploy into the markets once the dust settles.  As far as we are concerned, it means more opportunities for great trends and triggers will setup shortly.  We expect traders and investors to deploy their capital into suitable sectors/trends as soon as they are capable of discharging the risk concerns that are perceived right now.  That could come as early as November 5th or so if the election results are known by then.

I have been through a few bull/bear market cycles in stocks and commodities. I have a good pulse on the market and timing key turning points for investing and short-term swing traders.  If you want to learn how to become a better trader and investor, visit www.TheTechnicalTraders.com to learn how we can help you make money with our research and trading signals. Don’t miss all the incredible trends and trade setups coming up!

Chris Vermeulen
www.TheTechnicalTraders.com

Chris Vermeulen has been involved in the markets since 1997 and is the founder of Technical Traders Ltd. He is an internationally recognized technical analyst, trader, and is the author of the book: 7 Steps to Win With Logic

Through years of research, trading and helping individual traders around the world. He learned that many traders have great trading ideas, but they lack one thing, they struggle to execute trades in a systematic way for consistent results. Chris helps educate traders with a three-hour video course that can change your trading results for the better.

His mission is to help his clients boost their trading performance while reducing market exposure and portfolio volatility.

He is a regular speaker on HoweStreet.com, and the FinancialSurvivorNetwork radio shows. Chris was also featured on the cover of AmalgaTrader Magazine, and contributes articles to several leading financial hubs like MarketOracle.co.uk

Disclaimer: Nothing in this report should be construed as a solicitation to buy or sell any securities mentioned. Technical Traders Ltd., its owners and the author of this report are not registered broker-dealers or financial advisors. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer. Never make an investment based solely on what you read in an online or printed report, including this report, especially if the investment involves a small, thinly-traded company that isn’t well known. Technical Traders Ltd. and the author of this report has been paid by Cardiff Energy Corp. In addition, the author owns shares of Cardiff Energy Corp. and would also benefit from volume and price appreciation of its stock. The information provided here within should not be construed as a financial analysis but rather as an advertisement. The author’s views and opinions regarding the companies featured in reports are his own views and are based on information that he has researched independently and has received, which the author assumes to be reliable. Technical Traders Ltd. and the author of this report do not guarantee the accuracy, completeness, or usefulness of any content of this report, nor its fitness for any particular purpose. Lastly, the author does not guarantee that any of the companies mentioned in the reports will perform as expected, and any comparisons made to other companies may not be valid or come into effect.

Chris Vermeulen Archive

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