SPX: A new crash ahead?Hello traders and investors! Let’s study S&P 500 and try to figure out the meaning behind the recent movements.
The problem is that SPX lacks strength to go up in such a decisive moment. The yellow line around 3310 is a pivot point that could take the index to lower levels. The red line around 3280 is a natural target, but since it is too close, I’m not sure if it could hold the price, especially in such a complex scenario.
The situation is particularly dangerous not only because SPX is showing weakness near its All Time High, but because it focused too much on a few stocks. If we look at the chart below, a lot of stocks already lost their 50-Day Average, along with the 200-Day Average, and they have a clear top in June.
But SPX did record highs since June. This means that the money is focused on few stocks , that are taking the whole index up with them. This situation makes the market extremely vulnerable.
What stocks are carrying SPX? Probably, the big famous FAANGMs. Together, these 6 companies alone are responsible for more than 20% of S&P 500. Let’s remember that S&P 500 is made of 500 companies. They are big and relevant, and since they soared this year, if they do a pullback, SPX would feel.
A pullback to what point? Look at the FAANGMs chart below:
They are starting to get closer to their 21 ema, which is good, but they have a clear bottom zone at the blue line. If lost, the pullback will be sharper, and they are going to seek further supports. The Support Level 1 is a reasonable target to aim, at least right now.
Beyond this point, we have the Support Level 2, but I’m skeptical about it.
It seems the FAANGMs are living in a separate world, and they are getting more and more distant from the real stock market, as we can see by looking at this chart:
Since the February Crash, they are soaring to higher levels, and this is a warning. If they do a correction to the levels mentioned above, I wonder what would happen to SPX.
Would the money simply flow from the FAANGMs to other stocks, creating a boring congestion that would last for a few months? Or the sell-off on these 6 stocks would scare the investor and the index will crash along with them?
We can’t be sure for how long they will continue to carry the market, but the Price Action will always help us to understand the current market’s psychological moment. It doesn’t matter why or how it is going up, what really matters in the end, is that we traders must know how to make money, regardless of the circumstance.
And if you found this idea interesting, please, support it, and follow me to keep in touch with my daily analyses! Probably you’ll find something interesting around.
