S&P 500 Poised to Bounce Back After Short-Term Correction
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The S&P 500 tumbled 0.8% Tuesday as it undercut both the 50dma and 4,450 support in midday trade. While an afternoon bounce reclaimed 4,450, it wasn’t enough to get the index back above the 50dma.
I warned readers last Thursday, something like this was coming when the crowd was busy gorging itself on stocks at the highest levels in several weeks:
Well, here we are, three sessions later, and the index is down ~50 points. While 50 points doesn’t sound like a lot, that turns into real money in a 3x ETF.
S&P 500 Index, Daily Chart
For the unfortunate masses who held the previous trade too long, they watched a big chunk of their profits escape during Wednesday’s decline.
For the nimble traders that collected worthwhile profits last week and then flipped direction, that’s well over 100 points of profit for a few days’ work. Do that several times a month, and now we are talking real money.
As for what comes next, the market loves symmetry. Since we didn’t rally very far from the August lows, we shouldn’t expect this subsequent step-back to be large.
Maybe Wednesday’s test of 4,450 support is all we need to reset the clock. If that’s the case, we should hold above Wednesday’s lows for the remainder of the week.
On the other hand, if we retreat under Wednesday’s lows, look for the selling to push us back near 4,400 support.
At this point, I would expect that to be the last gasps of selling before bouncing. (If it’s not, the August lows are under serious threat.)
As I wrote last week, I wasn’t expecting a lot from this week’s retest of support, and that means I was already peeling off my short profits.
If the bounce continues on Thursday or Friday, I’m pocketing all of those short profits and going long again. But if we can’t hold Wednesday’s lows, I’m jumping back on the short bandwagon.