Technical Analysis: Breakdown

The S&P 500 (see chart below) broke a three-day trading range to the downside today and continued on through its 200-day average. The best hope for the bulls at this point is that 1466 holds, which would match the mid-October decline off the Oct. 31 high. If that goes, 1440-1450 should prove strong support.

Seasonality and commercial futures traders remain firmly in the bulls’ camp, but uncertainty over the subprime mess is giving traders plenty of reason to sell first and ask questions later. We’ve now had three 90% downside volume days on the NYSE since Oct. 19; we had five in the summer swoon. As happened in August, the best “all clear” sign at this point would be a 90% upside day to signal that selling pressure has been exhausted.

Until that happens — and we get some signs of stability from the financial sector — the floor belongs to the bears.

A good first sign of strength for the S&P would be to get back above its 200-day average at 1483 and to reverse today’s breakdown by climbing back above 1490.

Paul Shread is a Chartered Market Technician (CMT) and member of the Market Technicians Association.