This chart holds the key to the next move in global stock markets

Robert Cianflone/Getty Images

Global stock markets came under pressure during the first full day of trade for the week after the Greek drama took an unexpected turn over the weekend. That left a sea of red ink across Australia, Asia, Europe and the Americas.

But even with a fall of 3.6% in the DAX and CAC, and the 2% drop on the S&P, things could get much worse. As I suggested in my morning 20 seconds for traders the big question for fund and portfolio managers – and for traders and investors – is whether or not they try to get out of dodge early to avoid further losses or they hang on in the hope that like every other hiccup in the last 3 or 4 years, weakness gives way to a bounce.

Of course, the fundamentals are supremely important but in a shorter term “trading” sense it’s the technical outlook for the S&P 500 which holds the key to what traders do next.

That’s because having broken its 2-3 month uptrend with last night’s fall, the S&P 500’s fall stopped at the 200-day moving average.

S&P 500 Daily (Go Markets, MT4)

That’s important because many traders are taught that a simple bull/bear indicator of market direction is based on whether prices are above or below the 200-day moving average of the stock, or index they are trading.

S&P 500 Daily (Go Markets, MT4)

So for the moment the market remains in an uptrend. And the four-year weekly uptrend certainly remains intact.

But the S&P 500 is the global bellwether stock market. If the S&P breaks lower, many other stock markets around the globe will go with it. If it holds then it will support most markets and give traders, investors and portfolio managers confidence to keep buying dips.

The level to watch is 2053/55.

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