Reading S&P 500

The market makes an obvious move in the least obvious way. In other words, the job of the market is to trap you before making an obvious move. Let me explain how S&P 500 can make a counter-trending move over the next few days and weeks before making the obvious move.

Nobody knows what the market will do for sure but we can guess what the market can do. 

Reading S&P 500 Chart

The market is extremely oversold and hence it has to make a counter trending move to reduce the extreme pessimism that exists right now. Here’s S&P 500 weekly chart

As you can see in the weekly chart, S&P 500 built a base at 4100 in April-May 2021 before rallying to 4800. And then in Feb 2022, S&P 500 corrected to 4100 levels before bouncing to 4600. it then sharply sold off as 4600 acted as resistance and took support at 4100 before breaking down. Now, a pull-back rally might happen to retest the previous support of 4100 as resistance and in the process, S&P 500 can climb to 4300 on an intra-week basis and below 4100 on a closing weekly basis. This price action will confuse lots of market participants and create an illusion of a bottom before the market plunges to a 200-week moving average that stands near 3400-3500. 

What does this mean?

There is a high possibility that the pullback drama might happen for the next 3-6 weeks and in that small window, some stocks might start rallying hard creating bullish bottom anxiety. This can open up a small window of trading opportunities in select stocks for time being. As S&P 500 makes random moves with lots of rallies, expect some excitement. Most of the moves will be purely trading moves and one should be careful of trading them. It will be a market where extreme vigilance would be required. 

I will start looking at such opportunities again and share them with you but be quick in taking profits if they come.

Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers