On Monday, the S&P 500 Index fell by more than 2.25% amid growing concerns about market contagion from China Evergrande Group (HKG:03333). Investors are worried about the potential impact of the collapse of the Chinese property developer.
The Shenzhen-based company’s shares have plummeted more than 86% since 19th January, and now the market is beginning to fear it could spread to other property developers, raising concerns of a potential property crisis akin to 2008.
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Investors are readying themselves for the next two-day Federal Reserve update, starting Tuesday. As a result, US markets started the week on a low, with the NASDAQ 100 also falling by more than 2.55%, as of this writing.
Should you short or buy the S&P 500 index?
From an investment perspective, the US market looks strong based on the latest round of economic data. Last week, US retail sales for August soared more than 15% on a year-over-year basis.
And even though the initial jobless claims for the week ending 10th September came in slightly higher than expected, the continuing claims for the preceding week, were significantly lower than then expectation.
Moreover, the US manufacturing and services data for August, released earlier this month came in stronger than forecasted signaling significant progress in the US economic recovery.
Therefore, with several data points looking positive, it is unlikely that the Evangrande collapse will have a significant impact on the US market unless more property developers are affected.
Is the SPX pullback an opportunity to buy?
Technically, the S&P 500 Index seems to have plunged closer to the oversold conditions of the 14-day RSI. As a result, the SPX has now dropped out of the ascending channel formation in the intraday chart.
However, it also appears to have found support from the 100-day moving average. And now some investors think this could be an opportunity for a rebound, with the correction seemingly done.
The SPX has now fallen to the lowest level since July, creating a perfect opportunity for a rebound. As a result, investors can target potential rebounds at about 4,4482 or higher at 4,408. On the other hand, if the decline continues, the index could find support at 4,261 or lower at 4,184.
Bottom line: the SPX seems poised for an immediate rebound
In summary, with the S&P 500 falling closer to oversold conditions, it could soon bounce back due to the market efficiency.
Efficient markets always correct themselves when investors overreact to an event, and the SPX could be about to do the same following Monday’s collapse. Therefore, it could be time to buy the rebound.
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