Level of Equity Support and A Possible Scenario

Well yesterday was fun. I’m sure all of you saw the massive spike in the $VIX and the big advance that the yen took. Today also should be an interest day for traders with Bernanke testifying before Congress at 10am and headlines about the Italian election.

We saw the S&P 500 approach its first Fibonacci retracement level of 1486 after yesterday’s drop. This is the level of support I’ll be watching today to see if bulls can defend their ground or if the swift switch in momentum is too much to overcome.


Back in late-September I discussed a possible drop in equity prices if 1430 was unable to hold. I showed a chart of the relationship between the NASDAQ and 30-year Treasury Bonds on a weekly basis. Well yesterday’s price action has caused this ‘risk off’ metric to flip again like it did last fall – giving us another warning sign of investors shifting out of the higher beta NASDAQ Comp. in favor of long-dated bonds. After that post in September equities did rebound and test the previous high before breaking 1430 and taking us to the low we saw in November.  Last week I mentioned on Twitter and on the blog that we’d likely whipsaw as the last group of buyers stepped in before the real technical damage took place. We’ll see if this plays out and we get a test of 1530 or if things have broken down already.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

About Andrew Thrasher, CMT

Andrew Thrasher, CMT is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.