The US equity markets had an interesting week last week, especially with the volatility on Thursday & Friday, surrounding the sovereign debt issues in Europe. There was a dramatic down day in Thursday then the late day rally in Friday.
The SPY hit a support level of 104.62, at Friday’s low, which also happens to be the 38.2 retracement level from January’s highs to the 87.61 support/resistance level. Obviously there were buyers who were zeroing in at that level to get in. One can easily make the case we will go up from here with that bounce at that level.
Several SPDR sector charts show a similar characteristic of the SPY (bouncing from a support level), consumer discretionary, consumer staples, utilities.
Health care bounced from a bottom trend line, similar story to the action in SPY, consumer staples, consumer discretionary, and utilities.
Several sectors formed a whipsaw through a support level, energy, financial, and technology. All three are leading sectors that have been carrying the direction of the market.
On a technical basis, Monday will be a telling story of those sectors, in turn the entire stock market. The one to really watch out for is energy, as it closed right above not only support level, but also on a lower trendline. What occurs in the crude markets will carry the sector, in turn, possibly the stock market all together, bearing any fundamental news.
The only sector that did not touch support or a trendline Friday was materials, where it is in the middle of a range, after breaking a trendline in January. It has been declining pretty dramatically though, which is something to watch out for.
Could this be the bottom of the recent downturn? Technicals say it could be. If we end up breaching the any of the support/trendlines tomorrow, we could see an ugly week. We have to see how the market acts Monday to get confirmation to my thinking.