Today we have seen, for the first time since February, a second consecutive bullish day in SPX. This is also the first time since February that the SPX has been able to trade back above the 10 SMA on the Daily Chart. So the questions traders are now asking themselves are:
Is this finally the bottom?
Should I start to Buy in here for a run back up?
As we debate these questions, there are certainly a few things I am keeping in mind both from a Macro perspective and a Technical perspective.
Starting with the Macro perspective, there is still a lot of potential weakness in the future of not just the US economy, but the global economy as well. Many countries in Asia, Europe, as well as the US, have implemented “Stay at Home” restrictions. Other than essential businesses like Groceries, Electricity, Water, Internet, and Health and Safety Services, many companies are either shut down or are having to redirect their employees to work from home. Though work from home may benefit a small niche of companies like ZM or NFLX, this will end up taking some sort of toll on many more. The travel industry itself has been hit hard, and with stay at home being implemented at least into the April month, this will continue to impact them on a broader scale. You also have smaller businesses like restaurants that have not been able to make up the lack of customers through take away and delivery alone. A lot of the small businesses are finding themselves temporarily shut, or worse case, completely having to close their doors.
Unfortunately, it is not just travel that is affected. We are seeing many schools and daycares shut down. What does this mean for this year’s education? Will graduates be able to complete their courses on time? As a result, how will this affect the job market? If there are so many adults currently finding themselves temporarily out of work, and then we have an influx of graduates coming out in the next few years because of this hold on education, will we end up with another situation that we saw in 2008? If I were a betting lady, I would be leaning towards an outcome where longer term issues continue to bubble under the surface, and would be cautious to “load the boat” at our current levels.
From a Technical standpoint, there are some long term monthly levels I am keeping a close eye on in SPX. The first level of interest is 2678, where the ATR Trailing Stop (the blue dotted line on my chart) was printing support prior to our current break of the level. With the break of support it has now flipped the ATR Trailing Stop from support, into resistance. The only time that we have seen this switch occur on a Monthly Time Frame in the last 20 years was back during the Dot.Com Bubble coming into the early 2000s and in 2008 during the housing crisis/recession. Now the key here to take away is that we need to close the month below this level. We still currently have a week left of trading to determine whether or not we have broken this level or will continue to hold it as support.
In December 2018, we saw a similar situation occur where for most of the month we were breaking this key support level. However, with the last couple of trading days in the year, SPX saw a bounce back up and maintained holding it as support into 2019, where we started to make new all time highs.
With this very fresh in the back of my mind, I will remain patiently waiting into the close of this month to see if we break or if we bounce and maintain support. If we bounce, then I would still watch into April, but it could be the start of a buy back situation. With the volatility we have seen in the market, with Daily ranges over 160, it would not take much to get SPX back above 2678.
Unfortunately, I am not holding my breath for that to be the case, and if I had to choose now, it is looking like a break in support. If we do manage to break support, then there is a strong possibility the bearish trend will roughly last about a year, given the similar timing we saw back in the early 2000s and 2008. The one thing that might keep the bearish sentiment from lasting so long is the over volatility this month has shown. This has been the biggest monthly range on SPX easily within the last 20 years. If this monthly range continues to the downside, we may find ourselves at a bottom slightly sooner because the drop has been more dramatic.
The other level I am watching on the Monthly Time Frame is the 100 SMA at 2173. Earlier this week we saw a low go down touch this level and maintain it as support. This could allow for another target to the downside if we move back lower. The only thing I would be cautious about with this support level is the 100 SMA was broken both in the early 2000s and 2008, so if we are in a bearish trend, it might not hold up as well as traders would like.
It will be interesting to see how we close the month, I will certainly be keeping a close eye on these levels. Until then I will be keeping light on my risk and remain focusing on intraday style trades and the Profit Recycling Strategy in this volatile market.