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S&P 500 Bounces from 50-Day SMA, What is Different?

 

July 22, 2021 (Investorideas.com Newswire) The repeating technical pattern in the large-cap index has repeated itself once again. How long can this phenomenon last, and what is different in the underlying market this time?

Greetings. I hope this article finds you well and that you are using the strength in the equity markets today and yesterday to shore up your overall long exposure and getting some dry powder available.

Usually, I would be feeling like this is the easy part of the $SPX bounce; a quick move lower to the 50-day SMA, then the second up day where it just creeps higher on low volatility. That has been the pattern since the pandemic lows in March 2020.

Figure 1 - S&P 500 Index March 5, 2020 - July 21, 2021, Daily Candles Source stockcharts.com

We have discussed the 50-day SMA phenomenon at length in previous articles and used them as a basis for entries, so please feel free to peruse them for additional detail.

However, this time, I just couldn't get as enthusiastic about it.

Yesterday, in an article for Premium Subscribers, we mentioned the percentage of stocks that are currently trading below their 200-day standard moving averages.

Figure 2 - MMTH Index Percentage of Stocks Trading Above 200-Day Moving Average July 3, 2018 - July 21, 2021, Daily Candles Source tradingview.com

We can see above that the percentage of stocks trading above their key 200-day standard moving average peaked back in February. Many stocks dipped below their key 200-day moving average during the selloff earlier on Friday and Monday. However, we do still have this internal market indicator showing weakness.

We also have the interest rate conundrum that is currently facing the markets. Please see the July 15th publication for additional color in this area.

CPI Data & Interest Rates

We have higher prices across the board for many goods and services. What continues to fuel the demand at higher prices? Direct stimulus and artificially low interest rates are partially to blame for this. When you logically think about this, what will happen when interest rates rise? Will they rise? What about if the Fed begins to taper bond purchases and the market throws a "taper tantrum"?

Delta Variant & Olympics

As the delta variant has been making its way around the newswires for several weeks, markets finally began to take notice last Friday. As the start of the Olympic Games is slated for July 23, 2021 (just 2 days away), there has been some chatter about the Olympic Games being canceled due to the delta variant. Let's hope the games take place as scheduled.

Getting back to the equity markets, you may have noticed that the sectors that have been moving higher in the past several weeks have been limited; and only select names. This lack of broad market participation illustrates the percentage of stocks that are trading above the 200-day moving average. In today's and yesterday's session, we have more of a broader market participation due to oversold conditions. Small-cap stocks have led the way, as they were a very oversold group heading into Friday's and Monday's price action.

In a healthy market, we want to see broad market participation with a high percentage of stocks trading above their key 200-day moving averages. I feel like we are close to an inflection point in the broader markets, and there are several risks that skew to the downside, more so than the upside.

From 1980 - 2019 ($SPX):

  • July: +0.79%
  • August: -0.15%
  • September: -0.70%

The $SPX is up 1.32% in the month of July right now.

At a certain point, one would expect these factors to collide and for market participants to begin to view things differently; therefore selling the rip instead of buying the dip.

I can't be the only one.

Now, let's cover the markets we are monitoring for Premium Subscribers.

Not a Premium subscriber yet? Go Premium and receive my Stock Trading Alerts that include the full analysis and key price levels.

Thank you for reading today's free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian's reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one's financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits' employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

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