The S&P 500 is on the decline today after investors got spooked by a renewed wave of coronavirus infections hit several US states. Quarantine announcements by New York and New Jersey on travellers from US states with high infection rates also contributed to the 3.1% selloff on the S&P 500 today.
Several factors have contributed to today’s drop, which is the steepest that the S&P 500 has experienced since the 5.89% fall on June 11. Apart from the obvious effect that the rising number of coronavirus cases is having on the economies of various US states, analysts also believe that the recovery seen in the market in the last month have taken the markets too high and too fast into overbought levels. Fundamentally speaking, the consensus is that there has been very little improvement in several of the US economic indices to warrant such a steep recovery curve.
Rising coronavirus cases could also lead to a second round of lockdowns, with job losses and stifling of the recovery of key sectors such as the hospitality, retail and aviation sectors high on the list of market fears. The S&P 500 currently trades at 3061.6.
Today’s decline takes the S&P towards the support zone which has the 3028.3 price level as the ceiling of this zone. The 200-day simple moving average is also located within the wall of the zone. The price action of the last two weeks is now showing lower highs, which may be a sign that the recovery has run out of steam, at least for now. The lack of upward momentum has to be followed by a breakdown of the support zone for the decline to continue towards 2844.3. Further downside targets lie at 2793.4 and 2707.7 in the near-term.
On the flip side, a bounce from the 3028.3 price ceiling could allow for a retest of 3070.8, with a break above this level seen to target 3137.0 for the 4th time in two weeks. Only a break of the 3228.4 price peak would permit further advance towards 3335.5.