The technical set-up does not look good but it all depends on how the S&P500 performs for the next 10 days. There is potential for a Bearish Engulfing Pattern forming on a weekly basis (the key level is 1,513.61 close on Friday) or a Gravestone Doji forming on a monthly basis (the key level is 1,495.02 close next Thursday). We'll see.
I have been wrong on my prediction for a reversal in the S&P500 from a technical standpoint. And I have been wrong despite all the "Walls of Worries" - sequestration, rising gasoline price, higher payroll taxes etc. While materials index and particularly miners have been creamed in the past few days by bad news from China, the rest of the market have not. Even disappointing sales from a cyclical heavyweight CAT today only affected the company's share price, not the market, at least during the morning session.
The reason for the optimism was the confidence amongst investors that the Fed was still in play. They believes that the Fed will continue to pump $85 billion a month of fiat money into the economy no matter what. With today's FOMC Minutes, that belief has been questioned. Basically the Fed said, the $85 billion purchase of securities a month for the rest of the year is not a done deal.
This could be the start of something new, something like Draghi's comments on July 26, that started the bull market in the euro and the European markets, or Bernanke's speech at the Jackson Hole that first gave a hint of QE, and that started an 8 month long rally in the S&P500.
Of course, there are market gurus like Jim Cramer, who think this sell-off is an excellent buying opportunity.
