Markets Move Lower, Establishing New Trend

Markets Move Lower, Establishing New Trend

Last week was a tumultuous week for the market, with the S&P 500 falling 220 points and breaking through key moving averages. The sell-off began when the Federal Open Market Committee (FOMC) indicated that further rate hikes were likely, and was later confirmed by Fed Chairman Jerome Powell’s comments. 

As a result, the market began trading below the 200-day and 15-day simple moving averages (SMAs) and ended the week below the 21-day exponential moving average (EMA). These moving averages are important indicators of market sentiment, and the fact that the market is now trading below them suggests a potential change in the macro trend.

Price action moves through key levels

Today’s trading session confirmed this trend, with the 50-day SMA at 3,879, serving as strong resistance early on. 

The market’s inability to break through this level and the lack of buying pressure throughout the session allowed sellers to drive market prices lower. There was a brief moment of upside movement during power hour, but this was more due to exhaustion on the downside than any real strength in buying volume. Often times throughout the trading session, markets will make small reversions towards the mean as part of a much larger trend. 

With all the moving averages now above the current market price, we can expect to see more frequent, short-lived bounces stemming from exhaustion. That being said, there is still potential for upside movement; however, the path of least resistance is lower. 

Crucial levels of support and resistance 

On the upside, the 50 SMA is at 3,879. This level will be the first level above that becomes notable. Above that, there is a psychological level of 3,900, and the daily 21-day at 3,955. These levels will provide strong resistance but can also be used as a target in the short term. 

On the downside, a psychological level of 3,800 could send the market on its next leg lower. These round numbers are what can cause some panic if broken with strength. 

Markets start the week in red

At the close of the week, the S&P 500, Nasdaq, and Dow Jones all ended in the red, with the S&P 500 down 0.95%, the Nasdaq down 1.39%, and the Dow Jones down 0.56%.

We’ll be keeping a close eye on these key levels in the coming days and weeks. Stay tuned for updates.

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