S&P 500 Signal: Looks Bullish but Stretched

While the recent earnings season did not turn out as dire as some had feared, it is worth noting that certain less-publicized data points paint a less rosy picture.

The S&P 500 experienced a modest decline during Thursday's trading session, adding to the ongoing streak of market volatility. This has raised concerns for traders and analysts alike, leading many to suggest the likelihood of an impending pullback. (Me included.)

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The prevailing sentiment in the market has been a sense of hopefulness, or as I call it, "hopium," centered around the Federal Reserve's potential decision to scale back its monetary policies. However, this optimism may be misplaced, as the likelihood of the Federal Reserve implementing such measures seems slim. Instead, it is becoming increasingly plausible that we need to brace ourselves for the possibility of entering a recession, a prospect that does not bode well for the stock market.

Wednesday's trading session left behind a bearish signal in the form of a shooting star pattern. Yet, if the market manages to break above this pattern, it could herald a more positive outlook. Such a breakthrough might pave the way for a move towards the 4600 level or even a retest of the recent high reached in August.

In all likelihood, this anticipated pullback will attract value-seeking investors, particularly near the 4400 level and the 50-Day Exponential Moving Average, which coincidentally converges in the same vicinity. This scenario reflects a market that has broken free from a significant downtrend channel, potentially utilizing that channel as a support level in what traders often refer to as "market memory."

Keep Your Position Size Reasonable

While the recent earnings season did not turn out as dire as some had feared, it is worth noting that certain less-publicized data points paint a less rosy picture. One concerning indicator is the surge in credit card delinquencies in the United States, which have reached levels not seen since the few months before the Great Financial Crisis. This uptick suggests the possibility of an impending financial downturn.

In the end, the S&P 500 is currently navigating a landscape riddled with volatility, and the looming challenge it faces is the force of gravity. A pullback in the near future appears increasingly probable, as the market deals with economic uncertainties and the complex various factors around the economy. Investors would be wise to remain vigilant and keep position sizes reasonable.

Potential signal: I am a buyer, but not until we get a drop in price. Somewhere around the 4400 level, I am going to start buying small bits and pieces, with a stop at 4300.

S&P 500

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Crispus Nyaga
Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.