Key Takeaway

High school prom & sports try-outs, job applications, and dating - no one likes rejection, but after it happens, what's next? This week, the S&P 500 rejected its attempt to regain control of its 200-day moving average - an important psychological level for traders. Historically, this is not a great sign. So what comes next?

RSI (top red circle) is below 50; and MACD (bottom red circle) is negative - neither are good. So is there no hope?  Not quite yet; however, in our opinion, there has been some real technical damage that needs to be corrected soon, or it could indicate that the market has not yet found its ultimate bottom. In order to breathe a sigh of relief, the index will need to hold its recent low (red dashed line, Must Hold). This recent low marks the bottom for now, but we won't know unless it holds and builds from this level. If it breaks below the Must Hold line, the next two levels of support are marked by the orange dashed line. A possible bear flag measured move would put the index closer to the bottom orange line - again, if the Must Hold line is not held.

In looking back to recent prior examples, you can see the Lower Highs, Lower Lows example (2nd half of 2023) could not reverse it's downward trajectory until it was able to recapture its most recent high. This was the sign of a change of structure necessary to call a bottom - from down-trending to now recovery and growth.

In wrapping up, rejection is never fun, so what comes next? Keeping some cash handy and removing some of the higher risk positions is a good start. When the bottom is confirmed, it's time to go shopping by identifying and picking up positions that are more poised for a quick recovery.
 

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