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S&P 500: AS TANGO TRADERS, IT’S CORRECTION VS MOMENTUM (0900 EST/1400 GMT)

The S&P 500 Index (.SPX) ended Tuesday down 10.3% from its record close on Jan. 3. With that, the benchmark confirmed a correction.

The SPX closed at its lowest level since October 4 of last year. However, it has yet to breach its late January intraday low at 4,222.62:

Meanwhile, daily moose readings may offer glimmers of hope. This as a bullish convergence pattern can form on the RSI.

Just looking at the behavior of the RSI around the major lows of the past four years, in October 2018 and February 2020, the oscillator established a deeply oversold low at the start of the declines. Following what turned out to be counter reactions, the RSI failed to muster enough strength to reclaim the overbought threshold. The SPX then went to lows.

Ultimately, in these instances, the SPX bottomed out with the RSI able to form a higher low, as less severe bearish momentum witnessed the deeper SPX levels.

Recently, on January 27, the RSI dipped to 16.082. The SPX then jumped more than 6% in just four trading days. With that, however, the RSI failed to recoup the overbought, and the SPX has now moved to a new closing low.

However, with the RSI ending at 32 on Tuesday, a positive convergence has the potential to solidify with the late January low of 16.082 now the key level for the indicator.

Thus, traders will be watching the dance between the SPX and the RSI closely. Read more

Additionally, it should be noted that the SPX has Fibonacci retracement support for its entire March 2020/January 2022 advance at 4,198.7 and 3,815.2.

(Terence Gabriel)

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Terence Gabriel is a market analyst at Reuters. Opinions expressed are his own.

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