Key Technical Indicators Signal Downside Potential for S&P 500
Updated
The market has recently exhibited a series of bearish indications, suggesting potential further downside for the SPX:
Price Action: The market gapped down after September 20th and hasn't recovered those levels.
Short-Term Moving Averages: The 50-day moving average recently crossed below the 21-day, indicating a potential short-term downtrend. Moreover, the price struggled to move back above the 50-day level.
Diverging Moving Averages: While the 21 and 50-day averages tilt downward, the longer 150 and 200-day averages remain bullish, suggesting a potential trend shift.
Critical Level Breach: The SPX closed below its 200-day SMA, a traditionally bearish signal.
Key Bearish Indicators:
TRIN: Indicates more volume with declining stocks.
TICK: Levels between -1000 to -1300 signal a bearish sentiment, hinting at institutional selling.
VIX: A 66% rise in the past week reflects increasing market uncertainty.
Prediction: Given these indicators, it seems probable that the SPX might not rebound off its 200-day SMA in the short term. There's potential for it to breach significant support levels, including S2 and the 1 Year anchored VWAP.
Price Action: The market gapped down after September 20th and hasn't recovered those levels.
Short-Term Moving Averages: The 50-day moving average recently crossed below the 21-day, indicating a potential short-term downtrend. Moreover, the price struggled to move back above the 50-day level.
Diverging Moving Averages: While the 21 and 50-day averages tilt downward, the longer 150 and 200-day averages remain bullish, suggesting a potential trend shift.
Critical Level Breach: The SPX closed below its 200-day SMA, a traditionally bearish signal.
Key Bearish Indicators:
TRIN: Indicates more volume with declining stocks.
TICK: Levels between -1000 to -1300 signal a bearish sentiment, hinting at institutional selling.
VIX: A 66% rise in the past week reflects increasing market uncertainty.
Prediction: Given these indicators, it seems probable that the SPX might not rebound off its 200-day SMA in the short term. There's potential for it to breach significant support levels, including S2 and the 1 Year anchored VWAP.
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The S&P 500 Index showcased a significant green candle today, hinting at a potential bullish reversal. However, despite breaking above the 200-day SMA, it was unable to sustain this level and settled below Friday's closing price.Moreover, the technical indicators, MACD and RSI, are echoing bearish sentiments. The MACD distinctly emphasizes a growing bearish momentum, and given the RSI is positioned below 50 combined with the inability to uphold above the 200 SMA, the prevailing technical analysis supports a recommendation for a short position on the S&P 500 Index.
On a side note: Even as tech giants like MSFT, GOOGL, META, AMZN, and NVDA rallied in anticipation of earnings, the SPX couldn't secure its stance above Friday's close.
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Significance of S3: The S3 level is particularly pivotal for the SPX. Over the past year, it has played dual roles as both support and resistance, making it a key level to watch. The fact that a single level can switch roles as both a floor (support) and ceiling (resistance) amplifies its importance. A breach below this level could lead to amplified selling pressure, while a sustained move above might indicate potential bullish momentum.Critical Resistances: The market has been unsuccessful in surpassing several crucial barriers, notably the gap down, the 50-day moving average, and the high of the year anchored VWAP. Their combined resistance is formidable, especially given the market's inability to seal a close above these levels.
Bearish Candlestick Pattern: The most recent candles radiate a bearish vibe. The elongated red candle, preceding the latest green one, indicates dominant selling momentum. The subsequent green "inside day" candle, though contained within the range of the prior day's red candle, ended in its lower 1/3rd, signaling potential continuation of the bearish trend.
Technical Indicators:
RSI: The Relative Strength Index is below the midpoint of 50, indicating that the market is not in an overextended state and might have room for further downside movement.
MACD: The Moving Average Convergence Divergence reveals a distinct bearish trend. The MACD (blue) is beneath the signal line (red), with both tracking downwards.
Volume: The trading volume remains steady, suggesting continued interest and participation in the index's movement.
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