Let's take a look at the technical support picture for the Nasdaq and S&P 500 on a daily and weekly level.

Freepik

S&P 500 daily chart courtesy of Stockcharts com, annotations by Mish

Chart Notes 

• Gaps occur when a stop opens below the low of the previous day or above the high of the previous day then stays there.
• The blue box notes a partially filled gap, the bottom of which is at 4195.08. On three occasions, there were rallies into the gap area without fully closing the gap. 
• The red dashed lines are resistance lines, places where rallies have failed. 
• The blue dashed lines are support lines, places where buyers have bought stocks before and may do so again.

People dismiss Technical Analysis (TA) as voodoo but it works because people and algorithms use it. 

Mistakes come in because people believe it is supposed to predict something. Nothing in the above chart predicts anything. 

The point of TA is not to predict, but rather to identify lower risk entry points for buys and sell. 

Gap Magnets 

Gaps tend to act like magnets. Eventually, most if not all of them close. Shorting in June of 2022 was not a good idea. 

Not only was a big downtrend in place there were two stacked down gaps to boot. By August, both of those stacked gaps closed. 

In closing the afore mentioned gaps, there was a gap up that filled in mid-September. 

I was wondering if that unfilled gap would close. It could but three failed attempts that partially filled the gap may be sufficient to satisfy the gap gods. 

Support and Resistance

In a comment on Twitter a couple of days ago, someone talked about numerous support levels. I commented "Support is excellent at zero."  

Then I said, "More seriously, here are some charts." And that is the subject of this post. 

S&P 500 Weekly Technical Support and Resistance

S&P 500 weekly chart courtesy of Stockcharts com, annotations by Mish

OK, there is a lot of support but there is also huge resistance. From the point of view of a weekly trader, this would be a poor point to buy or sell given that it's half way between support and resistance with no good stop out point close by. 

Nasdaq 100 Daily Technical Support and Resistance 

Nasdaq 100 daily chart courtesy of Stockcharts com, annotations by Mish

The Nasdaq 100 has one unfilled gap, two partially filled gaps, and a tiny unfilled gap that partially filled the same day. 

Otherwise, note how many of the gaps have closed. Buying gap ups or shorting gap downs for other than a quick trade can cause misery if you hold them too long. 

Nasdaq 100 Weekly Technical Support and Resistance 

Nasdaq 100 weekly chart courtesy of Stockcharts com, annotations by Mish

The Nasdaq 100 has huge overhead resistance with a few support levels nearby. I expect those support levels will not offer much support in practice, but the 1050 level offers a better chance. 

Fundamentally Speaking 

Fundamentals add to the technical picture. Stocks are historically overvalued, the Fed is hiking, the earnings picture looks bleak. 

Rallies can occur anyway, at any time, and they have, regardless of fundamentals. 

But in general, support levels eventually break in bear markets. Resistance levels eventually break in bull markets. 

Looking Ahead

• Ultimately, I suspect every one of the support levels on the S&P 500 to break down to approximately the 2200-2400 level or so, at a minimum.
• Ultimately, I suspect every one of the support levels on the Nasdaq 100 to break down to approximately the 6000 level or so, at a minimum.

On the S&P 500, that would be a total decline of 50 percent or so. On the Nasdaq 100, that would be a total decline of about 65 percent.

The key words are "at a minimum". 

It's important to understand that my expectations represent very routine bear market declines. 

The Fed, Congress, and Presidents Biden and Trump acted together to blow one of the biggest, if not the biggest, economic bubble in history. 

Fed's Role in This Inflationary Mess

For discussion, please see How the Fed Messes With People's Lives From a Mortgage Rate Perspective

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