Stocks Pulled Back. Now What?
The S&P 500 has endured its sharpest decline of the year. Is it a healthy pullback, or the start of a new bearish leg down?
This chart considers a few patterns that might help answer that question.
First, the index fell as low as 3943 last Friday. It was below the 50-day simple moving average (SMA), but it quickly snapped back. Some technical analysts may view that as a false breakdown.
Prices also managed to remain 3 points above the 200-day SMA, a potential sign that the longer-term trend is upward. (It additionally held the weekly low of 3949 from January 25.)
Speaking of the 50- and 200-day SMAs, the white arrow highlights their “golden cross” in early February.
Next, the current price range is near a 50 percent retracement of the index’s move between the lows of December and the early February high.
Trendlines are another consideration. Most people know about the falling trendline that marked the bear market’s tops throughout 2022. Prices broke that pattern in January and have remained above it since.
And now a potentially bullish trendline has emerged (shown in blue). It started at the October 14 close and ran along the December lows. The most recent pullback has approached that line but remained above it.
Still the market’s fate could be determined away from these technical considerations. Buyers have been active since October on hopes of slowing inflation, but recent data suggested prices might have cooled less than thought. How will the Federal Reserve react?
We’ll find out for sure on March 22, when policymakers give their next interest-rate decision and crucial dot plot. In the meantime, traders might be watching items like tomorrow’s manufacturing report, Jerome Powell’s testimony in Congress (3/7), non-farm payrolls (3/10) and CPI (3/14).
TradeStation has, for decades, advanced the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
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TradeStation Securities, Inc., TradeStation Crypto, Inc., and TradeStation Technologies, Inc. are each wholly owned subsidiaries of TradeStation Group, Inc., all operating, and providing products and services, under the TradeStation brand and trademark. TradeStation Crypto, Inc. offers to self-directed investors and traders cryptocurrency brokerage services. It is neither licensed with the SEC or the CFTC nor is it a Member of NFA. When applying for, or purchasing, accounts, subscriptions, products, and services, it is important that you know which company you will be dealing with. Please click here for further important information explaining what this means.
This content is for informational and educational purposes only. This is not a recommendation regarding any investment or investment strategy. Any opinions expressed herein are those of the author and do not represent the views or opinions of TradeStation or any of its affiliates.
Investing involves risks. Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options, futures, or digital assets); therefore, you should not invest or risk money that you cannot afford to lose. Before trading any asset class, first read the relevant risk disclosure statements on the Important Documents page, found here: https://www.tradestation.com/important-information.
This chart considers a few patterns that might help answer that question.
First, the index fell as low as 3943 last Friday. It was below the 50-day simple moving average (SMA), but it quickly snapped back. Some technical analysts may view that as a false breakdown.
Prices also managed to remain 3 points above the 200-day SMA, a potential sign that the longer-term trend is upward. (It additionally held the weekly low of 3949 from January 25.)
Speaking of the 50- and 200-day SMAs, the white arrow highlights their “golden cross” in early February.
Next, the current price range is near a 50 percent retracement of the index’s move between the lows of December and the early February high.
Trendlines are another consideration. Most people know about the falling trendline that marked the bear market’s tops throughout 2022. Prices broke that pattern in January and have remained above it since.
And now a potentially bullish trendline has emerged (shown in blue). It started at the October 14 close and ran along the December lows. The most recent pullback has approached that line but remained above it.
Still the market’s fate could be determined away from these technical considerations. Buyers have been active since October on hopes of slowing inflation, but recent data suggested prices might have cooled less than thought. How will the Federal Reserve react?
We’ll find out for sure on March 22, when policymakers give their next interest-rate decision and crucial dot plot. In the meantime, traders might be watching items like tomorrow’s manufacturing report, Jerome Powell’s testimony in Congress (3/7), non-farm payrolls (3/10) and CPI (3/14).
TradeStation has, for decades, advanced the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
Important Information
TradeStation Securities, Inc., TradeStation Crypto, Inc., and TradeStation Technologies, Inc. are each wholly owned subsidiaries of TradeStation Group, Inc., all operating, and providing products and services, under the TradeStation brand and trademark. TradeStation Crypto, Inc. offers to self-directed investors and traders cryptocurrency brokerage services. It is neither licensed with the SEC or the CFTC nor is it a Member of NFA. When applying for, or purchasing, accounts, subscriptions, products, and services, it is important that you know which company you will be dealing with. Please click here for further important information explaining what this means.
This content is for informational and educational purposes only. This is not a recommendation regarding any investment or investment strategy. Any opinions expressed herein are those of the author and do not represent the views or opinions of TradeStation or any of its affiliates.
Investing involves risks. Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options, futures, or digital assets); therefore, you should not invest or risk money that you cannot afford to lose. Before trading any asset class, first read the relevant risk disclosure statements on the Important Documents page, found here: https://www.tradestation.com/important-information.
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