The S&P 500 Index (SPX) sold off Monday after nine straight days of gains, as anticipated. Meanwhile, markets are still sitting on a death cross between the 50- and 200-DMA. The 20-DMA is slopping upwards, providing support at around 5,370, writes Lance Roberts, editor of the Bull Bear Report.
The rising trend of higher lows will run right into the 20-DMA, which will likely stimulate some buying. At this point, we're still advising people to trim portfolios to reduce risk, take profits, and raise some cash.
The recent technical setup suggests a near-term correction after a sharp rally from the “Liberation Day” woes. Despite the short-term overbought conditions, corrections will likely remain contained above recent support levels for a couple of reasons.
The first is that the share repurchase (stock buyback) window has now reopened, and the sharp rise in buybacks has provided the necessary support for the recent rally. Those buybacks will continue through May.
Secondly, the breadth of the market has improved markedly. Market breadth has improved significantly with the number of stocks trading above their 50- and 200-DMA rising sharply, and the NYSE Advance-Decline line testing previous highs.
If you want my best guess, here it is:
- We’ve likely seen the market lows for this year.
- We’ve likely seen the highs as well.
Navigating a market trapped between support and resistance becomes emotionally challenging. Traders face sharp rallies into resistance — and retracements back to support — wearing down sentiment until mistakes happen
