Major Equity Indices Right On Support – Time For Bulls To Step Up, Else…

Under pressure in recent weeks, major US equity indices ended last week right on support. In a seasonally favorable period, virtually no one thinks the latest decline can – and will – turn nasty. For that not to happen, bulls need to hurry up and step up to the plate.

The S&P 500 (SPX) is caught within a months-long ascending channel. On November 5, when it rose to 4719, it kissed the upper end and retreated. On the 22nd, the large cap index rallied to a fresh intraday high of 4744 but only to reverse hard to close in the red. From that high through last Friday’s low of 4495, it dropped 5.2 percent, which is not a whole lot in the big scheme of things. The index closed last week just below horizontal support plus the 50-day moving average at 4540s, having rallied 30 handles in the last 10 minutes on Friday.

Earlier, November ended with a monthly shooting star. This was preceded by a bearish outside month in September, which was immediately negated by October’s bullish outside month. December’s candle, therefore, can have important implications.

Inability to save 4540s exposes the S&P 500 to risks of 4460s, which is where channel support lies (Chart 1). The 200-day is at 4306. In the event of a rally, immediate resistance lies at 4650s, where bears can show up.

Small-caps are faring worse. The Russell 2000 (IWM) peaked earlier – on the 8th. From that high through last Friday’s low, it shed 12.9 percent. In three consecutive sessions through Friday, bulls showed up at 2140s, closing out the week at 2159.

For nearly nine months now, the small cap index has been rangebound between 2350s and 2080s, and between 2280s and 2150s within this box. On Nov 3, it broke out, followed by a failed retest on the 19th (Chart 2).

A loss of 2150s can result in a hurried test of the lower end of the rectangle the Russell 2000 finds itself in. Otherwise, the daily is oversold and can rally. The 200-day lies at 2259. Just above that lies 2280s resistance.

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