**Graphs are at the end of the article.
S&P500 and DJIA on the edge, why?
Both S&P500 and DJIA are in the same situation, on the edge. USA stock market has gone down already and right now it’s holding just over the supports. If they hold then the situation would be extremely positive and we would have a very BULLISH market. However this could be a too optimistic thought.
For both indexes oscillators were much overbought and now are turning around. I consider with oscillators it’s not only the value what’s important but also divergences and the trend of the oscillator. Once the correction starts we can’t look for divergences but we should look to what happens with the trend of the oscillator. For this in a oscillator like TRIX that’s very smoothed I like to use a very quick moving average and for RSI just draw standard trend lines.
As we can see for both oscillators on both DJIA and S&P500 the situation is that or the trend has been broken or it’s just ‘on the edge’ of been broken. So for this reason I think the next day or couple of day would be extremely important to dictate the final direction or the market.
Now going to the graphs we can see that they are both very close to what it could be a support area. For s&p500 this is 2065 and for DJIA this is 17800 aprox. This area is not only important because it has already acted as a resistance and now it could act as a support. Also at this point we can find the 50 Moving average and if we looked to it the ‘ichimoku cloud’.
All this things support the theory that the market could hold here and stop going down. However if it does not do it we would be in a ‘free-fall’ situation. Where the market, both DJIA and s&p500 would have broken the support and won’t find another one until 2000 for s&P500 and 17000 for DJIA.
So to conclude, I think that the market is right now on the edge. It has a support to hold but if it keeps moving down a bit more, through this support, then it should keep falling for another 3-4% more. For this reason I recommend keeping an eye on it for the next couple of days and opening a short position if we see the market loses this support zone. This would be around under 2060 for s&p500 and under 17700 for DJIA.