S&P 500 Bounces From 50-Day SMA, What Is Different?

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”?

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Disclaimer: 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 ...

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