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The Confluence of SPX Support

The definition of confluence is “a coming or flowing together, meeting, or gathering at one point.” In technical analysis, the confluence of support/resistance levels occurs when key technical indicators (i.e., moving averages) and technical disciplines (i.e., trendlines, retracements, breakouts, etc.) all converge at similar levels. As a rule of thumb, the more convergences the stronger the support/resistance levels. For instance, if the pivotal 200-day moving average (ma) and the 38.2% Fibonacci retracement reside at similar levels then this will become an important technical support zone.


It is also important to remember that when different timeframes (i.e., daily, weekly, and monthly charts) are also converging at similar support/resistance levels it is considered significantly more important. For example, on the daily SPX chart, the 200-day ma is residing close to its 30-wk ma on the weekly SPX chart as well as its 10-mo ma on the monthly SPX chart.


Based on the confluence of supports we expect the SPX Index is now headed toward a major test of support over the near-term (next few days/weeks). The outcome of this technical test may help to determine the next directional trend of SPX. These technical supports are summarized below:


SPX daily chart

200-day ma = 3,134.74

2-month head/shoulders top breakdown downside target = 3,070.43

38.2% retracement from Mar-Sep 2020 rally = 3,054.74


SPX weekly chart

30-wk ma = 3,048.86

38.2% retracement from Mar-Sep 2020 rally = 3,054.74


SPX monthly chart

10-mo ma = 3,106.05

38.2% retracement from Mar-Sep 2020 rally = 3,054.74


In summary, it would appear SPX is headed toward a key test of important technical support along 3,049-3,135 coinciding with the confluence of technical indicators and technical disciplines. This would imply an SPX decline of -453.11 to -539.11 from its recent Sep 2020 all-time high of 3,588.11 or correction of the magnitude of 12.63-15.02%. So, the pertinent question then becomes - will this deep correction help to alleviate the overbought conditions created by the explosive 63.70% rally from Mar-Sep 2020?


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com


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