This week I wanted to take a look at the broader market and share what I’m seeing. For this newsletter, the indices I’m using are the S&P, Nasdaq, and Dow.
If you notice on the market charts, there is an area above that the indices have not been able to clear. Every bounce has been met with selling. We saw a four-day push from Friday the 17th to Wednesday the 22nd, and that push ended up being a bounce into resistance. Then we saw the gap down Thursday and the inability to recover on Friday.
Clockwise from the top: S&P Weekly, S&P Daily, Dow Daily, Nasdaq Daily
The Dow is not under its 50 moving average yet, but it is currently under its 20 moving average, so it may just be starting its own version of the range-bound environment that the S&P and Nasdaq have already been in.
Last week’s move into previous resistance and moving averages was met with selling again, so we could potentially be choosing direction here, and that direction could be down. I say this in my community all the time: if there is an area we cannot break through, then usually we need to break down first.
The inability to get back above resistance and hold is also showing up in a lot of individual names. I have a group that I’m calling the leaders in selling 😂. These charts have already put in one leg lower, and if the broader market keeps selling, there is a higher probability they put in another leg lower.
A Few Leaders in Selling
When I refer to a leg, I just mean one section of movement in a direction, usually broken up by some type of digestion. That digestion can be a retest to a level, a retest to moving averages, or some sideways movement before the next push in the same direction it was going before the pause/retest.
I pulled a few Dow names here, and obviously four names cannot capture everything in the index, but it is interesting to see how each chart is doing something different. CAT and AXP have started moving lower and are both under the 50 moving average, while JPM has been on a strong rise. UNH has not fully tipped over yet, but you can see that it has also not been able to push much higher from that upper level.
A Few Dow Components
So for the Dow, I’m seeing more of a mixed bag right now, with some names already under pressure, some still holding up, and others maybe just starting to show that range-bound behavior.
So how do we take all of this and actually use it?
I want to remind everyone that I am not well-versed in long-term investing and tend to be hella shortsighted (something I’m working on this this year 😅). I am definitely a short-term trader. But, from a broader market perspective, long-term positions can give back value while price stays under moving averages.
For my own trading, I’ve been using my range-bound playbook, which means I’m not expecting names to go the distance. I’m keeping targets shorter, taking profits at my first target, and most of my trades have been around 8 to 12 hours, maybe a few days max. If we start moving toward a more extended decline, then that adjustment changes a bit. I may start skipping some of the bounces and look for short plays.
SPX Review and Outlook
SPX is still inside this rotational area. Price is under the shorter-term moving averages, so more downside into the lower levels would not be surprising. But that downside move could still just be part of the range if price flushes into 7,336 / 7,300 / weekly 20 EMA area, then stalls and rotates back up. The bigger shift would be if we break those lower levels and get follow-through.
SPX Weekly Chart
SPX Daily Chart
Here are some potential scenarios for the coming week:
Flush Lower and Rotate Back Up
price continues lower into 7,336, 7,300, or the weekly 20 EMA area
buyers step in around that area and price starts to stall or reverse
this would still fit the range-bound market we’ve been in
Break Lower and Get Follow-Through
price loses the 7,300 area and continues toward 7,237
if 7,237 breaks and sellers build on that move, then the character may shift from range-bound to a downtrend
from there, I’d be watching for continuation lower toward the 200 SMA
Reclaim and Rotate Back Up
price starts moving up from Friday’s close
buyers reclaim the shorter-term moving averages
from there, I’d be watching how price reacts around 7,500 / 7,555
Stay Choppy Inside the Range
price does not give a clear break in either direction
we continue to see back-and-forth movement around the inner levels
this would keep SPX in the same range-bound environment
Coming into this week, I think the important part is understanding whether any upside move is just a bounce into resistance that gets rejected, meaning downside pressure and selling continue, or if price action starts to build back toward the top of the range in whatever you’re trading, which would keep the environment range-bound.
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