Technical Strategy

Expect Choppiness, Pullbacks; We Are Buyers Long Term

Robert Sluymer
Robert Sluymer
Managing Director and Technical Strategist
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Folks, my work suggests that internal market lows were developing between 3/13 and 3/18, when maximum new lows, volumes, the VIX index and the TRIN, or Short-Term Trading Index, all peaked simultaneously, followed by price lows on 3/23.

The S&P 500 closed above key resistance of its 200-week simple moving average (sma), 2648, for the fourth time this week with strong upside vs. downside volumes each day. Next resistance levels begin at the 50% retracement of the 1Q decline at 2792, followed by heavier resistance at 2939, which coincides with the 62% retracement level declining and the 50-day moving average (dma) at 2908, just below the now declining 200-dma, 3015.

I believe the key point heading into next week is that short term indicators, which were deeply oversold on 3/23 and bottoming, are likely to be overbought and peak JUST as another option expiration takes hold. Secondly, the S&P is now moving into its next major resistance band between the 50% -62% retracement levels (2792-2934) and the widely followed declining 50-dma at 2908.

Expect Choppiness, Pullbacks; We Are Buyers Long Term
Source: FS Insight, Bloomberg

Finally, but not unimportant, the first quarter earnings reporting season begins with the banks. The bottom line is a pullback is likely to develop next week with support levels at the 200-week sma (2648) followed by the 15-dma (2544), which the S&P held through last week and is now turning positive.

More importantly, stepping from the short-term noise, weekly indicators, tracking two to four-month shifts, are bottoming which suggests year end returns should be favorable. My expectation is that a full retest of lows is now unlikely and the more important issue for investors remains the outlook through the rest of 2020 and into 2021, which I view as positive.

While today’s global economic shutdown is clearly unprecedented, we believe equity markets have bottomed and year end returns are likely to be positive based on our internal indicators.

Bottom Line: Expect some pullbacks and sloppiness. We are buyers on weakness.

Figure: Weekly Sector Review
Source: FS Insight, Factset

Expect Choppiness, Pullbacks; We Are Buyers Long Term
Expect Choppiness, Pullbacks; We Are Buyers Long Term
Source: FS Insight, Bloomberg

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Robert Sluymer
Robert Sluymer
Managing Director and Technical Strategist
Share
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