Last week continued the market decline of the previous two weeks. The S&P and Nasdaq found support around 3900 and 11,540 respectively. These support levels correspond with the lows from a small pullback that occurred on July 26th.
The analysis of support levels based on charting is called technical analysis. This type of analysis doesn’t give you exact answers, but it does give you specific price levels to anticipate reversals in the direction the market has been moving, e.g. a downward trending market reverses and begins to move upwards. Usually, the market doesn’t reverse course just at any random price level but rather at specific technical levels. The difficulty with this analysis is that there are multiple support levels, and a technician doesn’t know at which level the market will reverse. Some support levels are stronger than others and this has to do with the volume of trading that occurred at each level, with stronger support found where there was increased trading. The market may distinctly stop and reverse at a support level, or it may briefly bounce off a support level and following a few bounces it may break through the level and head lower.
If the market drops below the current support level, around 3900, there are other support levels at 3796, 3721, and 3640. It’s also good to keep in mind that support levels are elastic zones in which the market may reverse slightly above or below the exact numbers. The bottom line is the market is currently offering good buying opportunities and I utilize technical analysis to find optimal times to incrementally space out the investment of new funds.
This is just one aspect of technical analysis. Please contact me know if you would like to learn more.
Photograph by: Chris Liverani on Unsplash
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