S&P500 lost 3.5% last week. On Friday I was speculating on AC facebook page that I’d like to see a close of around 1997 and below to confirm the acceleration of downward momentum. Wall Street closing price was 1999.

Several things could be a factor in the drop. This whole year, downward corrections were few and far between, most of them lasting 3 days or less. Predicting any kind of a serious drop in S&P500 seems a fools errand.

However, end of year profit taking and possibly a chirp from Janet Yellen this Wednesday about the impending rate hike could have a further negative effect on the index. Look out for her NOT mentioning “considerable time”, as the rate hike could happen in spring, as heard before from the resident Fed hawk Fisher. Not mentioning “considerable time” might fade Yellen’s usual dovishness in the eyes of the market participants.

Technical analysis supports this view. S&P Daily chart paints a picture of a weak demand level here at 1999, with stronger support all below 200 DMA (1938)  waiting at demand around 1854. So far, anytime this index dipped its toes below 200 DMA, it failed to close below it, violently retracing upwards. If we do get a close below 200 DMA it will be a significant confirmation of a more serious pullback taking place, at which point players with large buying power will be jumping in. Short setups advised with eyes on 1938 reaction.