S&P500 Turning Down in the Short-Term?

After the previous week’s stall, the most recent week saw the S&P drop almost 0.9% Volume was light, but volatility crept higher suggesting that investors were getting worried and as a result they started buy more downside protection.

In US macro news, the results deteriorated. The housing market index, existing home sales, the Philly Fed business outlook, leading indicators and the PMI composite flash report all missed their respective expectations. Only housing starts and initial jobless claims beat their estimates. And the Fed’s balance sheet took another notable step down in size; last week it rolled off $9 billion in assets. This brings the total, since October 2017, to almost $145 billion.

The signals from technical analysis have now diverged. On the one hand, the weekly charts of the S&P500 are now bullish, especially since most of the damage from the losses earlier this year have been recovered. But the daily charts have—due to the loss last week—have now turned bearish. Specifically, MACD on the dailies are pointing to more selling in the near-term. And that may mean only another few days of selling. Why? Because the index price is still well above the 50 day moving average, and the 50 day moving average itself is still well above the 200 day moving average (dma). Plus the 200 dma is comfortably sloping upwards. Finally, despite last week’s pullback, our Simply Rule is also still comfortably signalling that investors should remain long the S&P500 index as a whole.

So let’s see if the predicted selling in the S&P500 actually materializes and if so, let’s see if it’s going to respect the longer-term indicators which remain—for now—still bullish.

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