ValueTrend: Near-Termed SPX Strategy

The stock market’s recent pullback was the fifth-fastest pullback from an all-time high to a correction. After declining 10%, stocks have looked to recover a bit. Technical analysis provides a sign of key areas to recover to.

More importantly, prior market history suggests where to look for a sustainable bounce. That’s because technical levels play two roles depending on the price action.

On the way down, a key price range is a form of support, where buyers often come in. After that trend breaks, the key price range becomes resistance. That’s where traders may sell again, having seen enough of a bounce before going lower.

Currently, the 50-day moving average could be a key support level for markets. If the S&P 500 goes back to its 50-day and can hold above that level, it could continue higher. If so, it will likely continue through the summer until seasonal weakness kicks off in the fall.

If stocks cannot continue a relief rally and fail to regain and hold key levels, there could be further selling ahead. Given the mix of economic and headline news data, some area already calling this selloff a “growth scare.”

Given the current uncertainty, investors may want to carry a higher percentage of cash than what they would normally hold. But if stocks break higher, some of the most oversold tech stocks will likely rally the hardest.

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