Sometimes a number in the stock market can take on an identity of its own, one that's more powerful than anything else influencing prices.
Lately, the magic number has been 2,120. For the last couple of months that's been the spot on the S&P 500 chart where, regardless of whatever else is spooking investors, the market's greedy little inner optimist takes over and says, essentially, "meh, it ain't that bad, fools."
Nothing fundamental changes below 2,120, don't be ridiculous. Yet all across Wall Street there are horizontal lines drawn to show that recent dips below that number are best measured in minutes or hours rather than days or weeks:
Let's all just take a minute to sit back and behold the strength of this line, regardless of what the news flow has done to fuel the fires of uncertainty.
The dips that threatened the line in the middle of September and October were caused by a variety of mildly worrisome news including weakness in Chinese exports and growing speculation that the Federal Reserve was going to raise interest rates. And with that in mind no one was quite sure if it was good news or bad news that U.S. industrial production contracted more than forecast and retail sales unexpectedly fell.
However, nothing was more impressive than the threat the line endured this past Friday, when we entered what Cowen & Co. policy analyst Chris Krueger called the "[Carlos] Danger zone.” On that day, it looked as if the news gods and the market gods must have been engaging in a bet whose stakes kept getting higher and higher.
This bet would've started simply enough, when the markets god made a simple wager with the news god.
"I can hold a close above 2,120, regardless of what you throw at me," the market god proffered.
"Oh yeah, how about an 'October surprise' regarding the FBI investigation into the emails of your BFF, Hillary Clinton?" the news gods said.
"Player, please," the market god responded. "I've blown off more Hillary emails than the liberal media."
"Oh yeah?" the news god responded. "What if this time the e-mails in question were from the inbox of none other than Anthony Weiner, a.k.a. 'Carlos Danger?' Boom!"
"Oh crap," said the market god.
And for a minute there, it looked like the market god was finally going to lose this bet. But that was it: a minute. Literally. Even less than a minute, really.
That is precisely how long it took for the world's largest stock market to decide that going below 2,120 was an overreaction -- even when faced with the impossible challenge of trying to discount the news that the most clownishly tabloid-worthy politician in the history of New York tabloids had just arrived at this circus, popped out of his creepy little clown car in the middle of the center ring, and took a big bow for the crowd.
The afternoon dip below 2,120 was so short it doesn't even show on this chart:
Truly, my friends, this is a powerful line indeed. So in the interest of telling you all you need to know about this important line, we present the following Gadfly Q&A.
Q. Do I have to be a Chartered Market Technician to draw a line like that?
A. No! It's easy, give it a try!
Q. Why is this line so important?
A. Because so many people have drawn it. Duh.
Q. What happens if the S&P 500 falls below this line?
A. Everyone's going to have to draw a new line.
Q. Where will the technicians be drawing the new lines?
A. On the unemployment line, am I right?
Q. No. I mean, where will the lines be drawn on the charts?
A. Egads, that's a loaded question. Luckily, there are potentially a bunch of other support lines to draw underneath 2,120. Official Bloomberg First Word Chart Guy William Maloney, CMT, says to look for another potential support line at 2,117, which would represent a 38.2 percent Fibonacci retracement of the post-Brexit rebound. Or else look for support at 2,115, which was the intraday low on Oct. 13. Then there is 2,113, which was the high on June 23 before the Brexit vote. And there's always 2,110, or even 2,100, because: round numbers.
Q. What the heck is a 38.2 percent Fibonacci retracement?
A. We're sorry, but that's all the time we have for questions today.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Michael P. Regan in New York at firstname.lastname@example.org
To contact the editor responsible for this story:
Matthew Brooker at email@example.com