False Breakdown in the S&P 500?
Early this year, we covered the false breakout in the S&P 500. Now the opposite may have taken place: a false breakdown.
Notice how prices dipped yesterday to their lowest level since mid-June. They blitzed through support from early October and July, before reversing to close slightly positive. That kind of testing below support, followed by a quick rebound back above it, is a potential sign of the bears retreating for now.
How to explain the recent violent selloff? Worries about the Federal Reserve are clearly one issue, but another factor could be the concentrated news cycle. After all, investors had to cope with Fed meetings in both December and January – without many any break from corporate earnings. Throw in a few million omicron cases and tensions over Ukraine, and you had a depressing environment emotionally.
But how long will the gloomy winds blow? Jerome Powell speaks his piece tomorrow afternoon and exits stage left. Then comes
Elon Musk and then 
Tim Cook, followed by 
Sundar Pichai and 
Mark Zuckerberg next week. We also hear from 
Satya Nadella this evening. That flood of earnings (about half the S&P by the end of next week) could dispel the recent bleakness.
Still, SPX has broken the trendline beginning in October 2020. It also took out the 200-day simple moving average. The result could be a period of consolidation as the Fed begins its hawkish work.
Traders may watch the early-December lows around 4500 as the next important resistance and prepare for a few months of chopping around. (Remember the first rate hike is expected in March.)
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Notice how prices dipped yesterday to their lowest level since mid-June. They blitzed through support from early October and July, before reversing to close slightly positive. That kind of testing below support, followed by a quick rebound back above it, is a potential sign of the bears retreating for now.
How to explain the recent violent selloff? Worries about the Federal Reserve are clearly one issue, but another factor could be the concentrated news cycle. After all, investors had to cope with Fed meetings in both December and January – without many any break from corporate earnings. Throw in a few million omicron cases and tensions over Ukraine, and you had a depressing environment emotionally.
But how long will the gloomy winds blow? Jerome Powell speaks his piece tomorrow afternoon and exits stage left. Then comes
Elon Musk and then Tim Cook, followed by Sundar Pichai and Mark Zuckerberg next week. We also hear from Satya Nadella this evening. That flood of earnings (about half the S&P by the end of next week) could dispel the recent bleakness.Still, SPX has broken the trendline beginning in October 2020. It also took out the 200-day simple moving average. The result could be a period of consolidation as the Fed begins its hawkish work.
Traders may watch the early-December lows around 4500 as the next important resistance and prepare for a few months of chopping around. (Remember the first rate hike is expected in March.)
TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
Important Information
TradingView is not affiliated with TradeStation Securities Inc. or its affiliates. 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. 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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