Support Levels Bombarded

March 20, 2018.

U.S. stocks fell sharply on Monday, the S&P 500 and the NASDAQ suffering their worst trading day in 5 weeks as concerns grew about the possibility that new sweeping regulation will be placed on tech companies. Bottom buyers did not appear at the beginning of the day, essentially, helping turn the negative gap at the opening into a downward daily trend. It was a day marked by an unceasing selloff, anxiety levels mushrooming.

The stock of Facebook (FB) tumbled 6.8% after the company faced an onslaught of questions from both American and European legislators about how an election adviser for Trump got access to the data of 50 million Facebook users. The stock recorded its worst trading day since March 2014, falling now 10.8% since having achieved its all-time high on February 1. The stock has now officially entered price correction territory – after having fallen 10% from its latest high.

The decline in the stock of Facebook weighed significantly on the entire tech sector (XLK), which ended off 2.11%. The NASDAQ 100 fell over 2%. Other large stocks also recorded losses, concerns rampant that regulation could strangle their profit-making activities. Apple (AAPL) ended off 1.53%, Google (GOOGL) falling 3%.

Daily Summary: The Dow Jones fell 1.35%, the S&P 500 shedding 1.42%. The NASDAQ ended off by 1.84%.

Perhaps the worst thing about yesterday’s movement was that there was no quick rebound attempt at the beginning of the downward slide. Buying towards the end of the day saved the indexes from closing at the daily low, but did not succeed in changing the technical picture, which has seen substantial damage.

The S&P 500 succeeded in finding support at the 2,700 point level, the NASDAQ revealing signs of support around the 50-period EMA at the 7,284 point support level. Even though these support levels held their ground yesterday, they looked fragile at best and it would be far from a surprise to see these support levels take another onslaught. In the event the 2,700 point level on the S&P 500 succumbs, there’s no technical rest stop until the 2,650 point area. Thereafter, we’ll start hearing the word “retest,” when February’s low enters the picture.

The good news is that yesterday’s selling swept up all of the market sectors, meaning that there’s a high probability that certain stocks took a beating due to no fault of their own. When the market rebounds, they’re expected to record a nice comeback. Of course, the challenge is that the stocks are now moving in unison, and there’s no way to know how much negative momentum is still extant in the market.

There are 2 basic measures one can resort to in a market like this: respect stoploss levels and dump stocks that have reached these levels. It’s very easy to lose one’s sense of discipline when expecting stocks to record a comeback, but the line in the sand has to be demarcated at some point, losses taken in turn.

The second measure one can take in a market like this is to put together a wish list. You don’t want to be the first one to rush in and buy stocks when they go into freefall, but it does help to start tracking stocks that you might be interested in buying later. The freefall in the market in February provided a beautiful buying opportunity and it could be that another such opportunity is developing now.

Yesterday’s movement accentuates the fact that the market needs a price retest in order to retest a number of support levels. We haven’t seen a large change in the market’s fundamentals, but once in a while the market does need to slash exaggerated evaluations back to size and show the bulls that they cannot take the gains as something that goes without saying.

Technically speaking, it would seem that the market can fall lower than it did yesterday, but it would be a cardinal sin to ignore the bottom buyers. Therefore, it’s best to look for the trigger that’s likely to activate the automatic algorithmic buying programs in the market in the near future.

Tuesday’s Hot Stocks: BB, ORCL, OPNT, PLCE, ESLT

Have a great trading day!

Today’s Picks – Day Trading!

New York Strategy Swing