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Technical Analsys - Where is the stock market going to find some support?

SPX Tech analysis by Simon Kazinsky on 05:26 February 26, 2020 EST

It's been a heck of a week so far and there are 3 trading days ahead of it yet, but where or when is this sharp downtrend going to end?

We take a look at the monthly chart to find a likely place where to start taking some gains if you are short or add to your longs if you are a perma bull. The Coronavirus is at present the center of attention because it is unclear the extend of the damage it can inflict to the world's population and, as a result, its economy. Moreover, outside of China the contagious speed seems to be way faster that what figures from the communist ruled country data previously indicated.

From a technical analysis aspect and looking at the S&P 500 chart we should consider this as an important event yet to be properly assessed and therefore it is likely that medium term supports will be tested. This is, anyway, an overstretched financial market long overdue for a sizeable correction.

As such, we have been noting in previous technical analysis how the 7 month (lows) moving average has been supporting price action for the most part of the 10 years old bull run. Therefore, it is to be expected that a market coming from overbought territory and with the impending threat of a global pandemic this support, currently at 3,010 and rising will be tested. A break below this level can't be discarded before a sizable bounce takes place.

A big correction that puts an end to the exuberance in the stock market may have just started although just by looking at the chart it is too early to tell. Breaking and holding below 3,000 on the S&P 500 will dramatically increase the bearish bias.