On the daily chart below, we can see that after breaking and retesting the key 1920 level, the market sold off heavily. The fall started with a more hawkish than expected Fed Chair Powell speech but increased as we started to get news of problems with the Silicon Valley Bank.
Regional banks make up a notable chunk of the Russell 2000 index and that’s why the index underperformed for example the S&P500. We got the last wave of selling on Monday as the market was still digesting the news of the Silicon Valley Bank collapse even though the Treasury and the Fed enacted emergency measures to calm the markets and the banking system.
The market found support at the previous swing level at 1730 and it’s now consolidating awaiting new information.
On the 4 hour chart below, we can see the little range created with the support at 1730 and the resistance defined by the 38.2% Fibonacci retracement level. The market is now looking forward to the FOMC meeting next week to decide where to go next. So, the price action is likely to be choppy trading into the event.
On the 1 hour chart, we can see that the price was diverging with the MACD falling into the 1730 support. This was a signal of a weakening selling momentum. In fact, the last selloff on Monday happened after the Treasury and the Fed intervened to backstop the “crisis”, so it was more like the peak in fear rather than a continuation.
From a trading perspective, it may be better to wait for a clear breakout before taking positions. The sellers will need a clear break of the 1730 support while the buyers will need a break above the 1800 level.
The 50% Fibonacci retracement level though will be the last line of defence for the sellers as it’s the top of the previous divergent move into the 1730 support.