The S&P 500 index tested support at around 2,635 a couple of times during yesterday’s trading session. Closing above this level was crucial and the closing points will also be crucial for the next few of days.
If the S&P can close above 2,635 we are likely to see a bounce towards 2,750. A close above 2,764 could provide fuel in the short term (a Santa Clause rally ?) towards 2,850-2,900. But before that scenario could unfold, the gap down from yesterday needs to be closed ie. a close above 2,691.
If bears manage to close the Index below 2,635 a renewed massive sell-off is likely to be initiated. Bargain hunters might try lifting the market once again but if the weekly close is also below the support level, the picture will be even more bleak for equities.
I’d expect a minor rebound today: RSI seems to find some support at the rising trend line and there is in fact divergence since the end of October. Closing the gap from yesterday, however, is likely to be a struggle.