Wednesday’s trading session was a bust for bulls. This morning’s rousing rally attempt melted faster than a Popsicle in the noonday sun. The S&P 500 jumped just shy of 0.5% in the first 30 minutes of the day and then tumbled lower all day long. By the closing bell, the S&P 500 had shed 4 points, or 0.17%.
The scene of the intraday reversal was a location visited virtually every day over the past three weeks — the 20-day moving average. And, like every other meetup, this one ended in tears. The recent price action for the S&P 500 is a beautiful illustration of the power of moving averages.
These smoothing mechanisms often act as gathering grounds for dip buyers and rally sellers. As such, chart watchers keep a close eye on an eventual break of not just the 20-day, but also the 50-day, 200-day, and a few other popular time frames.
I reiterate James’ market comments from yesterday. Until we see the S&P 500 back above the 20-day and 50-day moving averages, don’t bet on any upside magic from stocks here.
But it’s not as if Wednesday’s 0.17% drop in the S&P 500 qualifies as a shot across the bow from the bears. I’d chalk it up as just noise. If you’re itching to get bearish, start rooting for a break of this support level. Then the fun begins in earnest.
Small-caps were a standout Wednesday. The Russell 2000 was up as much as 1% before paring back gains to finish the day up 0.38%. While the S&P 500 was rejected by the 20-day, the Russell suffered defeat at the hands of its 50-day moving average. With the small-cap-laden index stuck smack in the middle of its four-month range, it’s tough to divine direction here.
I suggest waiting for resolution one way or the other before throwing your lot in with buyers or sellers. Watch $1,380 on the upside and $1,345 on the downside.
On the sector front, energy stocks were the big losers on the day. The Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) stumbled 1.47% on the heels of a dramatic drop in crude oil. A broad swath of energy stocks fell to fresh year-to-date lows on heavy volume.
Metal stocks were also taken behind the woodshed. The SPDR S&P Metals and Mining ETF (NYSEARCA:XME) fell 1.73% breaking below its 200-day moving average for the first time since February 2016.
Watch both areas for further weakness in the days ahead.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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