By Marty Lundgren

The stock market has seen wild swings in the last couple months and everyone is wondering whether or not we’ve reached a bottom. From a technical standpoint, it appears that we haven’t. In fact, a simple look at the technicals might make you want to reconsider calling a bottom in this market.

If you look at the 20-day and 40-day averages, you’ll notice something anyone would learn in Technical Analysis 101. Old support has become the new resistance. In the E-mini S&P 500 chart below, you can see support building around the 20-day moving average at the end of October and in early November. On November 10, the market breached the 20-day moving average and fell sharply until November 20.
The stock market sell-off was stopped by sharp rallies on Friday, November 21 and Monday, November 24. The 20-day moving average was the old support and has now become the new resistance point.

The new resistance for the S&P 500 is now 891. As was expected, the market tested the resistance level today (November 25), but failed during the morning trading session.

Since the S&P 500 has fallen below the 20-day moving average, I would expect the market to continue its trend lower.

If you’re looking to day-trade the stock market, I usually suggest trading the E-mini S&P 500 and the options associated with that contract. It is the deepest and most liquid equity market, giving you the best bid and offer at any given time. Make sure you use protective stops and parameters if you are day-trading. I generally recommend a protective stop below the low of the day.

In the E-mini S&P 500, I would recommend going short at 894 with a stop 10 points up.

You can also position yourself in the E-mini S&P options. I would recommend buying a December 740 put, which currently is priced at approximately $600, not including commissions. It gives you about 24 days until expiration to see this market continue trending lower.

Be skeptical of anyone trying to call a bottom in this market. In bear markets, it is fairly common to see a market fall through its support and then come back to test that support. In that case, the old support usually becomes just another resistance point, and another reason to see the market continue its fall.

Marty Lundgren is a Senior Market Strategist with Lind Plus. He can be reached at 866-317-9477 or via email at mlundgren@lind-waldock.com.

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