• Risk-off sentiment causes US500 to fall to 2-week low
  • Price dips below prior support at 2701
  • Failure to recapture 2701 could see a sustained push lower

The fallout from the latest political developments in Italy has soured global risk sentiment with not only European markets effected, but also Asia and the US in the red. The US500 has been remarkably sanguine of late, with price spending a fortnight in the narrow range from 2701-2741. This 40 point range represents a roughly 1.5% move from top to bottom and is uncharacteristically tight. Markets that a contained to a more narrow than usual range can be seen as coiling before breaking out and making a sustained move – and today’s weakness could see price make a break lower.  

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 The trading range for the US500 has narrowed of late, but the bears are trying to make a break lower today. Source: xStation

If we go back to the major decline seen in late January and early February it is apparent that the range has narrowed since then with a series of lower highs (LH) and higher lows (HL). Should price end the day below 2701 then the case for a break lower would gather support and a retest of the higher low around 2591 would then be possible. This narrowing of the range can be further illustrated by viewing moving averages with the 8 and 21 EMAs converging once more. Today is the first time in 3 weeks that price has been below the 21 EMA, and should it end below it then that would also further the case for a push lower. 

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 The US500 has fallen below the 21 EMA for the first time in 3 weeks today and should it end the session below there, then that would further case for a move lower. Source: xStation

While things are looking pretty negative ahead of the Wall Street open it should be pointed out that the market is holding up a fair bit better than its European peers. Should the forthcoming US session see buyers step in and stem the declines, then that would be a clear positive and if price fails to break lower despite the negative news, then it could be seen as a sign of strength going forward.