Thursday's Market Minute: S&P Futures Showing Technical Warning Signs

The recent rally in S&P 500 futures that bulls have enjoyed seems to be struggling as equity futures are starting to show a technical breakdown. The /ES has now fallen more than 8% since its recent highs on Aug. 16, slumping back below the 4,000 level during the past few days on heavy volume. Price hit an important level on Aug. 16, briefly touching the 200-day Simple Moving Average before starting this recent leg down and slipping below most of the common major moving averages – notably experiencing a resounding drop below the 50-day Simple Moving Average on Tuesday.

Meanwhile, the RSI, which measures momentum and speed of price change, is also sharply trending downward and is close to the bearish signal of entering the oversold area. Additionally, the Average Directional Index (ADX, which represents the strength of the current trend in either direction) is turning upward from a trough, which suggests the downtrend is building up some steam. Other potential alarms going off include the Parabolic SAR showing a bearish crossover to reflect a downtrend, price falling below the yearly Linear Regression Line (a measure of “fair value” based on the previous year’s closing prices), and two closes below the lower Bollinger Band (reflects extreme price relative to its own recent history) this week.

The concerning thing about this move is the /ES has already passed through many of the common technical indicators at which traders would be looking to gauge support areas. Watch whether price can hold at the previous lows from Jul. 26 near 3,913 as this could be the doorway to further downside. The 50-SMA is now a key point to watch for resistance, currently near 4,020.

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