A week ago today, SPX tagged an important Fib target that would have been a perfect turning point were it not short of the 200-DMA. As we noted at the time [see: The Red Zone] a reversal without tagging the 200-DMA would have been highly unusual.
There have been no instances of SPX approaching but failing to tag its 200-DMA since January 2003. It would also be easy to prevent.
First, SPX’s SMA200 is just above at 2741.55. It seems unlikely that SPX would come all this way just to whiff at such an important target.
Second, SPX has obviously pushed back above major support at the 2.24 and the H&S neckline.
Last, if VIX spikes higher, won’t USDJPY or CL/RB just come to the rescue?
As things turned out, SPX backed off just enough to tease bears: a 57-pt drop over the next three sessions. At that point, SPX had dropped enough to flesh out a sharply rising channel from its Dec 24 lows.
More importantly, DJIA had tested and was in danger of dropping through its own 200-DMA. Clearly, it was time to prop up equities. And, that’s exactly what happened.USDJPY, CL and RB came to the rescue, ensuring that SPX regained its 2.24 at 2703. And, VIX — which did initially spike higher — was hammered (-58% so far) after Mnuchin convened the Plunge Protection Team, giving stocks all the support they needed to come back and test the Feb 5 highs.Once SPX tags its 200-DMA, is it safe to assume it will be able to maintain its momentum?
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