Unlike 3 Weeks Ago, Bulls’ Defense Tue Of Crucial Support On Major US Equity Indices Produces Mixed Results

Merely three weeks after successfully testing crucial trend-line support, major US equity indices once again go through a similar experience on Tuesday – successfully but only this time the save was not as clean.

At the end of January, major US equity indices landed right on trend-line support, which bulls forcefully saved. Three weeks later, their mettle was once again tested on Tuesday, and this time they managed to regroup only feebly.

On March 23 last year, after a vicious five-week collapse during which the S&P 500 tumbled 35 percent, the large cap index put in a major low (arrow in Chart 1). (Incidentally, in that very session, the Fed announced unlimited quantitative easing and said it would start buying investment-grade corporate bonds, which in April was expanded to also include junk bonds.)

From that low through the intraday high of 3950.43 set on Tuesday last week, the S&P 500 went on to rally 80 percent. Along the way, one after another resistance fell, even as bids showed up near resistance-turned-support.

In early January, for instance, bulls showed up in defense of 3640s, which was the high on November 9 when Pfizer (PFE) announced its positive vaccine news. Then, at the end of January, the S&P 500 (SPX) landed right on a rising trend line from the low of last March, and it was defended.

The index has come under pressure since last Tuesday’s high. This culminated in the intraday drop of 1.8 percent on Tuesday (this week) when it tagged 3805.59 but the weakness was aggressively bought, finishing up the session 0.1 percent. Bulls showed up in droves just above the 50-day (3796.66) and the aforementioned trend-line support; in the end, the index (3881.37) essentially closed at short-term support at 3870s.

Small-cap bulls similarly stepped up to the plate where they needed to. On February 10, the Russell 2000 Small Cap Index reached a new intraday high of 2318.09 before facing resistance at the upper bound of a rising channel from late October-early November (arrow in Chart 2). Earlier at the end of January, it found support at the lower bound.

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