During the first week of November, with the S&P 500 in a resistance area (2,100 – 2,135) that has produced many, many failures, I asked the question: Will it once again represent an unmovable object or will stocks stick their nose up at these levels and run the S&P 500 to all-time highs?
Well, we got our answer last week as the S&P 500 pulled back 3.6%. So as of right now, the brick wall of overhead supply remains in force.
I did proffer an answer a couple weeks back sharing that the most logical forecast is for the market to pull back before making meaningful highs. However, I also said that the market call gets tricky once the pullback runs its course, as there are plenty of technical arguments for the bulls and plenty for the bears.
This conundrum kind of reminds me of earlier this year, when sound arguments could be made for both sides of the market. What happened? Unfortunately, that led to a boring, sideways market. From my perspective, I hope that’s not in the cards again. Remember, good money can be made in a bull market over time, but great money can be made in a bear market in a very concentrated amount of time.
So where might this pullback be headed and what are the bullish and bearish arguments for the stock market at this point?
On the 1-hour chart, the S&P 500 has broken down from a small head-and-shoulders (H&S) formation and measures down to 2,019 (give or take). If Mr. Market wants to go lower, then 1,990 should be important price support. Friday’s closing price of 2023 also marks the 38.2% Fibonacci retracement area. And 1994 is the 50% Fibonacci level, making the 1990-1995 the next key price support zone.
S&P 500 Chart (60 MIN)
On the daily chart, the steep, unsustainable uptrend has been busted. The moving average convergence divergence (MACD) has rolled over and gave a sell signal a few days ago. The 14-period relative strength index (RSI) has cycled back to neutral territory after reaching overbought territory earlier this month. The 100 and 200 day moving averages now rest just overhead (at 2,034 and 2,064 respectively), while the rising 50 day moving average lies at 2,007.
S&P 500 Chart (Daily)
On the bullish side, the S&P 500, the NASDAQ Composite, and the NASDAQ 100 have made very nice recoveries from their August and September lows. At those lows, and despite only a minor correction in the “500,” sentiment cycled into an extreme state of fear and panic that is usually associated with bear markets.
On the monthly chart, we have noted some improvement, but there are still worries from a longer-term perspective. Price has recaptured its 20-month exponential moving average (EMA) and after taking back its 10-month simple average (SMA), is now sitting very close to this average. The 10-month SMA is starting to curl higher, also a good sign. The 14-month RSI remains in bull market territory, having bounced off the 50 level, but the trend remains lower.
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