Summary:

• US500 falls back to close the gap from last Friday’s close (2712)
• Price now back near the low of recent range
• Weakness seen in Asia and Europe spilling over to the US

The bright start to the week for US stocks has fizzled out with the US500 hitting its lowest level of the week ahead of the Wall Street open. The market gapped sharply higher on Sunday’s open after the US-China trade truce was declared over the weekend but a failure to take out the 2740 level decisively has seen the market fall back to the bottom of its recent range and close the gap.

 The US500 has fallen back to close the gap higher from Friday’s close at 2712 and now trades back near the bottom of its recent range from 2700-2740. Source: xStation

After the resistance around 2740 held price has moved down to test the support region around 2700, with price remaining in this 40 point range for the last couple of weeks. The rest of the day’s trade could be key going forward; if traders can defend the 2700 floor successfully then the range will remain in tact, but should bears manage to push the market below 2700 then a larger decline becomes possible. The Asian and first part of the European session have been quite negative for stocks with large declines seen in several indices, and unless the US comes in buying then it could get worse before the day is out. 

Looking at a daily chart, one thing that is perhaps noteworthy is the number of red closes we’ve seen of late with last Wednesday the solitary day’s gain in the past 8 trading days (if we assume that today ends lower). On it’s own this may not seem to indicate much but given that the market has been range bound it suggests that the price keeps falling throughout the session after starting more brightly – as is most evident from the gaps higher.

 The number of lower closes in recent days could suggest some underlying weakness in the market and if 2700 gives way then a larger decline could lie ahead. Source: xStation