FxWirePro – Further drop in S&P 500 towards 1800 likely

Even after almost two weeks into trading risk aversion just refusing to subside. As of now it is stemming from two distinct sources, drop in commodity prices lead by oil, which has dropped below $30 /barrel for international benchmark and worries over China.

Just after a day, People's bank of China reigned over disparity between offshore and onshore Yuan, spread started widening again and stock market dropped, renewing worries. China's main benchmark stock index, Shanghai composite dropped to lowest level seen during August, bringing this year's decline to more than 15% already. Though Shanghai closed in positive 2%, it was mostly due to short covering, so further drop likely.

Oil on the other hand declined for eighth day consecutively yesterday, just shy of nine day all time record. Today it is up but less than1 percent. Brent is down this year close to 20%, raising default worries in US shale sector.

S&P 500 itself has shed more than 8% already and further drop seem conceivable. According to our calculations, S&P 500 might drop further towards 1800 level, not seen since 2014.

Trade idea 

Those who are already short, it is recommended to continue position. However those who are struggling to enter current price around 1890 is still good to go, however due to late entry since original stop loss could be painful, it is recommended to use yesterday's high around 1950 as stop.