S&P Battles to Defend Key Level

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The S&P 500 is trying to defend a key level, battling off waves of bearish headlines.

2700 has been important several times this year. It was resistance in mid-April and support in late June. The index bounced slightly above it on October 12, and last week’s sharp rally happened after the bears failed to drive the S&P 500 back below that level.

Once again today, 2700 is in play as bulls and bears try to digest a confusing stream of information.

Do you know many of these moves were anticipated on our weekly Market Action breakdown sessions? Click here for more!

First, Market Insights has repeatedly covered tech problems like slowing chip sales and a saturated e-commerce market. Related charts like the Nasdaq-100, semiconductors and Apple (AAPL) are groping for support because of those issues.

New to the stream of bad news this week are unexpected negative stories impacting other sectors.

S&P 500 chart with pivots near 2700 level.

Perhaps the strangest was Malaysia slamming Goldman Sachs (GS) over the handling of debt issues several years ago. That triggered its sharpest drop in over five years on Monday.

Crude oil (@CL) experienced one of its most dramatic selloffs ever as sentiment swung from complacently bullish to life-hatingly bearish in a few weeks.

General Electric (GE), once king of the hill for U.S. stocks, has cratered deep into single digits amid a potential cash crunch. PG&E (PCG), once a boring utility, became a volatility machine after acknowledging it may have liability from this week’s deadly wild fires in California.

Of course, GS, GE and PCG are just individual companies. But there are two things to remember. First, they all have a lot of debt. (This week has seen some noteworthy drops in the value of corporate bonds, by the way.)

Second, these extreme one-off cases illustrate how wide-ranging the bearish news has become. The bulls could counter by pointing to the strong economy, which usually matters more than the bad luck of a few isolated companies.

So far, the market has dismissed the positives. Today’s better-than-expected retail-sales report was met with heavy selling. Sector performance across the S&P 500 also shows investors taking a glass-half-empty view by favoring safe-havens like real-estate investment trusts and consumer staples.

Taking a step back, investors may ask if we’ve reached the worst of negativity bubble or this is really the start of a deeper correction.

This post isn’t trying to predict which way things will go. But the way things shape up at this line around 2700 could do a lot to help answer that question.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.