S&P 500 Breaks Critical Support, Gold Soars

It seems like only yesterday we said the following:

Judging by the late sharp move down in equities 5 minutes before the close, indexes are likely to open down tomorrow morning at the bell, with support at 2040 on the S&P getting closer to being tested for a third time.

In fact, that actually was yesterday.

Today, the S&P 500 (NYSEARCA:SPY) has finally, after six months of zigzagging since February, broken critical support at 2040 to close the day at 2035. Following the freefall in the last 5 minutes of trading yesterday, the market opened down hard and continued down for most of the rest of the day, seemingly stabilized until the last few minutes once again. It was the last few minutes of trading that had stocks finish with a final tumble, this time 12 points, which finally broke the 2040 support line.

The next major support is now 73 points away at 1972, and after that, the October 2014 lows at all the way down at 1820. Stocks still have a chance to bounce off of current support which was only marginally broken, but given the dismal close and the concurrent clear break of the 50 day moving average, chances are small. Strong bounces tend to be foreshadowed by a strong close to the day, which we did not see today.

Ironically, it is the Nasdaq (NASDAQ:QQQ) that may offer the best hope that the broader market can rebound from here. Though tech stocks had an even harder selloff today with leaders like Netflix (NASDAQ:NFLX) and Facebook (NASDAQ:FB) losing 7% and 5% on the day, the Nasdaq itself is more healthy from a technical perspective. It has neither broken the 50 DMA nor broken February support yet. If the Nasdaq can bounce from here, it can take the rest of the market with it.

Either that, or the S&P will bring down the tech sector.

Oil (NYSEARCA:USO) showed some signs of life at the open, but that quickly faded as the day closed with oil down another half percent on the day.

The only ones cheering today are the gold bugs, as gold (NYSEARCA:GLD) continues its climb, taking gold stocks with it. Gold miners (NYSEARCA:GDX) have had a particularly good week so far, climbing nearly 20% in the last 5 trading sessions.

Where we go tomorrow may depend on overnight action in Asia. China’s Shanghai Composite has lost 8% in the last week, with ADR’s of Chinese large cap stocks (NYSEARCA:FXI) down 10% since August 10th, and remarkable 29% since topping. If China continues its freefall overnight, the chances of a waterfall decline in the S&P at least down to the next support zone at 1972 on the S&P increase.

May we all sleep well tonight. We’ll need it.