The Market Is Testing Resistance & Support

This Chart Speaks For Itself
February 8, 2019
Man rolling a ball of money uphill like sisyphus, representling the struggle of the federal reserve to accommodate the desires of investors in the stock market
Surprise! The Stock Market Continues to Struggle
August 27, 2019
Document stamped fail representing a recently failed test of the stock market's technical resistance.

As I pointed out in my post from February, from a purely technical perspective, if the S&P 500 could breach its 50 Week Moving Average (50 WMA) and its 200 Day Moving Average (200 DMA) it appeared that it would continue on to test the highs set in the fall of 2018. The index did breach those points of resistance and, as suspected, it did return to retest the previous highs. In fact, the index even managed to barely eke out a fresh high-water mark. It then almost immediately began to retreat from those new highs. Although setting new highs, this movement represented a failed test of the previous highs, a price region that now officially represents resistance.

As of today, the S&P 500 is back to retest the potential support of those same moving averages breached in February. If these moving averages fail to provide support – again, from a purely technical perspective – it could indicate much more downside ahead. Perhaps, at least, a retest of the 200 WMA, which presently sits at 2,425.24, or approximately 13.5% below yesterday’s closing value on the index.

Conversely, if the S&P 500 manages to hold these lines in the sand, we may be in for another retest of the highs from the Fall of 2018 and those recently set.

Daily candlestick chart of the S&P 500 with moving average overlays
S&P 500 Daily Chart
Candlestick chart of S&P 500 with weekly moving average overlays.
S&P 500 Weekly Chart

In my opinion, it appears that the best case scenario for the S&P 500 in the absence of full fledged easing of monetary policy is that it remains rangebound between the most recent highs and the lows set between February of 2018 or those set in December of 2018 for the next 12 to 18 months. This would be expected behavior from a financial market that has run out of good news, lacks a significantly negative catalyst, and is highly attuned to day-to-day headline noise.  

It is also my opinion that the end is already here. Technical market fluctuations are interesting because they are an illustration of human (and those programs written by a human) behavior, but, at the end of the day, financial markets eventually realign with economic fundamentals. Those fundamentals are presently struggling.

Comments are closed.