North American markets found support in mid-January after three weeks of sharp declines. However, after a brief rebound, those key support levels are expected to be retested again in February.The S&P 500 has bounced off of the 1860-1875 range three times in the last 6 months.
Now that the rebound rally has stalled and rolled-over, the index is expected to retest the support range again over the next week or two.
The Dow Jones Industrial Average bounced off of the 15,500-15,750 range in January, as it did last August.
With the recent roll-over, the Dow is now expected to pullback to those levels over the next few weeks.
NASDAQ has also rebounded from a previous low (4,292 in August) last month. We anticipate the index will retest the 4,300-4,400 band over the next few weeks.
For the TSX, the mid-term trend still remains down. The index has posted a series of lower lows and lower highs over the last 8 months.
The most recent trough in January, produced a short-term bounce that has now stalled and rolled-over.
We believe the Canadian index will retest the 11,900-12,000 zone again in the next few weeks.
Bottom line: The U.S. markets are expected to retest significant support levels over the next 1 to 2 weeks.
The TSX should also find underpinning at the mid-January support level.
Note: Should the indexes break these key support levels, the projected outlook would be another 8% decline below the key support levels.