Exchange traded funds indexed to the S&P 500 jumped more than 2% on Wednesday as some technical traders attributed the bounce to buyers stepping in at a key support level.
The Dow gained over 200 points and U.S. equities were recovering after three straight days of losses after Germany’s highest court ruled the country can participate in the European financial bailouts.
“Yesterday the S&P 500 found support at a trendline drawn up from the August low. The subsequent recovery from that level resumes the bearish consolidation of the past four weeks,” said Tarquin Coe, technical analyst at Investors Intelligence. “The sideways range is taking the form of a textbook ‘flag’ pattern. Consequently, a snap-back rally towards the top of that pattern is now implied.”
The iShares S&P 500 (NYSEArca: IVV) was up 2.3% in afternoon trading Wednesday. The ETF entered the session with a 6% loss year to date.
“That bounce could carry as far as the 1230 region [on the S&P 500], a move which would enable an underside test of the 50-day exponential moving average,” Coe wrote in newsletter Wednesday. “At that point we will look to open shorts but in the meantime the move towards the top of the range is a very short-term trading opportunity.”
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.