Bears continued to press their advantage on Thursday, ultimately sending the S&P 500 (SPX) back to 3,745, a closing loss of 1%, states Jon Markman, editor of Strategic Advantage.
The Dow started in the black but finished with a big 346-point loss. Small caps were down but fared better than the bigs, falling just 0.5%.
Clearly, bulls were reluctant to add positions ahead of the September Nonfarm Payroll report due early Friday. A stronger employment number will prop up the narrative that the Federal Reserve has plenty of runways to keep raising short-term interest rates.
Bond traders seem to agree. The yield for the Ten-Year Treasury Bond on Thursday moved back above 3.8%.
There is modest support for the benchmark S&P 500 at 3,698, the high from October third. A decline to that level would fill the gap from the following session. If 3,698 does not hold, the next line of support for bulls would be 3,584, the low from a week ago.
Overhead resistance is still the declining 20-day moving average at 3,994, then the 50-day moving average was up at 3,994. Recent attempts to breach that resistance have proven futile, which suggests that large-cap companies' shares may have to recede further during the Q3 earnings reporting season in October and November before finding a sustained bid.
We recommended the ProShares Ultra Russell 2000 ETF (UWM) on September fifth at $31. The double-leveraged Russell 2000 fund closed Thursday at $31.79. The position is ahead 2.5%.
Place an order to sell half of the position at $36.00. Place a stop loss order at $29.50.
If this trade works, the potential upside target is +16.1% and the potential downside loss is -4.8%