Image Source: Pixabay
 

Hey traders! I hope you had a nice weekend despite that nasty turn lower on stocks we saw on Friday. As you know, the move came after Trump threatened to impose new tariffs on China, following China’s own restrictions and tighter export controls on rare earth metals, which are crucial for the tech sector. We’ve seen this story before back in April, and if tariffs come back into focus again, traders will likely react with fear — so it’s not a surprise we saw such a strong drop in stocks on Friday.

Normally, markets are most sensitive when this kind of news first hits, and then they tend to stabilize afterward. What’s interesting, though, is that despite the strong sell-off in stocks, the dollar index didn’t show the kind of sharp upside reaction you’d usually expect. So I’m wondering if stocks can find some support, but seems like this can be only wave B rally, since we are in the middle of wave four retracement. Keep in mind there is an open gap lower on futures.
 

SP500 4H Chart
 

S&P 500 made a sharp reversal last week, with price breaking below the impulsive channel in wave three, so it looks like this extended leg could be finished and the market may be entering a new corrective phase. Usually, when we observe a contracting fourth-wave correction, we focus on the previous fourth wave of one lower degree — in this case, support around 6358 could be the first key level to watch, followed by 6200, which was also the February high. So despite the sharp turn, we still think this could be only wave four, which may stabilize after a visible A-B-C pullback that is still in progress.

Big supports are at 6400 and 6200.

For a detailed view and more analysis like this, you can watch our latest recording of a live webinar streamed on October 13: DIRECT LINK

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