Short-term Pullbacks Possible but No Bear Mkt Rally Signal Array ( [cookie] => ba99c8-da7ef8-ba095f-f00b93-11bc3a [current_usage] => 2 [max_usage] => 2 [current_usage_crypto] => 1 [max_usage_crypto] => 1 [lock] => 1 [message] => [error] => [active_member] => 1 [subscriber] => 0 [role] => fsi_macro [visitor_id] => 593573 [reason] => [method] => ) 1
In last week’s note, I discussed the crossroads that the Standard & Poor’ 500 index (SPX) faced after rallying into a resistance band that coincided with prior week’s highs at 2954, the widely watched 62% retracement (2934) of the 1Q decline and the declining 200-dma at 3002. Early this week the S&P broke below a key short-term uptrend level defined by its 15-dma (2828) and has been below that level for a good part of the past three days.
This suggests that a short-term correction is underway, one that many bearish pundits conclude was the end of a bear market rally. While that bearish view is understandable and can’t be disregarded, I continue to urge investors to keep an open mind.
After a 34% rebound a pullback from heavy resistance, bearish concerns should not be a surprise, but considerable support bands that remain intact. As I noted last week, first trading support is at the prior week’s lows at 2797, which coincides the 50-% retracement of the Q1 sell-off at 2792. The S&P did temporarily break below that level on Thursday morning, but it had pulled itself back above that key support by the close and remains above that level at 2864.
I believe that it’s too early to conclude the pullback is over, but so far the equity market is respecting first support, which I view as encouraging. Should those levels break in the coming week there is a band of support at the S&P’s 50-dma at 2730 and the rising 200-week moving average at 2660. My view remains unchanged and expect pullbacks to be relatively shallow and new lows are unlikely.
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