On the fence… caught between a rock and a hard place… whatever you want to call it. The market could just as easily go in either direction from here, with good reason to expect both possibilities.
Even so, on balance it’s still the bulls that need to prove something at this time. The bears have the ball, so to speak.
Nowhere is all of this more evident — and more confusing — than on and with the daily chart of the S&P 500. Last week we pointed out that the horizontal support line (yellow, dashed) at 4331 that has been a floor a couple of times in the middle of the year had been broken. Well, Friday’s failed recovery effort verified that former floor is now a ceiling. Yet, even with that rekindled selling effort the S&P 500 remains above a couple of major technical support levels. One of them is the 200-day moving average line (green) at 4200. The other is the straight-line support (light blue, dashed) line that more or less connects Thursday’s low with March’s low as well as last October’s low.
Here’s the weekly chart of the S&P 500 for a little more perspective on that long-term straight-line floor.
If there’s an ideal spot for the bulls to push back, we’re at it. And, given that the S&P 500 has fallen a hefty 5.2% in just the past four weeks, the market’s certainly primed for a little pushback.
Underscoring this prospect is the fact that the NASDAQ Composite isn’t in the same basic sort of trouble that the S&P 500 is. Rather, the NASDAQ managed to fight its way back above August’s low near 13,157, and remain above that mark even with Friday’s intraday rollover. And as the weekly chart also shows is, the composite is finding support at the same straight-line support level connecting last October’s low to March’s low to — now — Thursday’s low (light blue, dashed).
Nevertheless (and as was noted), it’s the bulls that will ultimately need to prove their mettle here. The momentum is still net-bearish, and if you look closely you’ll see the selling volume behind last week’s most bearish days is starting to come in above its recent average. The charts also suggest both volatility indexes are fighting to go higher… which is generally bearish for stocks. They just need one more good “umph” to get there. You can even see the 20-day moving average lines (blue) have already fallen under their 50-day averages (purple), and both are close to moving under their 100-day moving average lines (gray). Again, that sets a rather bearish tone.
And yet, don’t panic too much of that’s the way things shape up. This is the time of year we’d expect that weakness, which tends to reverse course sometime between mid-October and mid-November… at the latest.
Indeed, in some ways a little more scary selling here might be the best thing for the bulls, by virtue of clearing the proverbial decks so the market can easily dish out its usual year-end gains without any left over baggage or unfinished business.
For the time being though, stocks are mostly just caught between a rock and a hard place. Don’t be shocked if we don’t see much net movement this week, allowing indexes’ floors and ceiling to continue closing in.