Index level alert - SPX challenging a key trend support level at its 15-dma

One day’s trading is often just noise, and the Nasdaq is again green on the day BUT yesterday’s late day sell-off on higher downside volume, had the hallmarks of a short-term reversal day tactical investors/should pay attention to particularly heading into today’s close.
 
The levels are likely to be increasingly important heading into option expiration this week and next  (5/15 for equities and 5/20 for index options) with the 15-dma (S&P 2870, NDX 8919) important short-term proxies for the trend of the recent equity market rebound.
 
 
Noteworthy technical developments  

  • The S&P 500 (SPX) reversed from important short-term trading resistance at the most recent high on 4/29 at 2954 while the Nasdaq 100 (NDX) reversed from the 2/24 gap between 9195-9593, that technically focused traders are fixated on.
     
  • S&P support begins at the 05/04 lows at 2797 and 50-dma at 2725 followed by a heavier band of support near the 200-week (~1000-day) sma 2660-2640. See chart 1
     
  • Nasdaq 100 (NDX) support, below the 15-dma at 8919 begins at its 50-dma (8266) and 200-dma (8311). See chart 2
     
  • Our short-term momentum indicators (chart 1, top panel) peaked in mid-April, flip-flopping into May and actually began to turn up at the beginning of this week. It’s not a text book setup but a move below the zero axis would confirm a corrective window developing. Also, other momentum indicators many technical traders follow, such as MACD, Stochastics and RSI, are also at or near stall/reversal points so expect to hear more technically focused headlines highlighting those developments in the coming days/week.
     
  • Key levels for the VIX (32) begin at the declining 15-dma at 33.75 followed by the 05/04 highs at 40 and the 50-dma at 47. See chart 3

Bottom line:

  • The S&P has tested and rebound from its 15-dma 3x since the March lows with this week being the fourth. Given the S&P stalled at it previous 4/29 high, a close below the 15-dma (SPX 2870, NDX 8919) would likely signal a short-term correction taking hold. 
  • Given weekly momentum indicators, that track 1-2 quarter market swings, are early in upturns from deeply oversold level,  our expectation is that a correction, should it develop, will not see new lows and will be contained within support bands outlined in the text above and charts below. 


Thank-you



CHART 1

Auto Draft

Source: Fundstrat, Bloomberg, Optuma



CHART 2

Auto Draft 1

Source: Fundstrat, Bloomberg, Optuma


CHART 3

Auto Draft 2

Source: Fundstrat, Bloomberg, Optuma

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