Market Turbulence: A Closer Look at the Recent Downturn
The stock market has been experiencing a rough patch, with all major indices closing at daily and weekly lows on Friday. While the price damage has been relatively contained so far, it’s essential to examine the underlying trends and indicators to gauge the market’s direction.
Indices Take a Hit
The S&P 500 has retreated 4.3% from its December 6 closing high, while the Nasdaq has dropped 5% from its December 16 peak. The Nasdaq 100 has fallen 5.6% below its December 16 high, and the S&P MidCap 400 has declined 8.5% since its November 25 high. The S&P SmallCap 600 has been the hardest hit, plummeting 10.5% from its November 25 closing high.
Key Support Levels
The S&P 500 has found itself at a critical intermediate-term support level, coinciding with its 21-week exponential moving average (EMA) of 5,816. Notably, the index has not closed below this level since October 2023, and even then, it only lasted for two weeks. The weekly Parabolic SAR, a time- and price-based system, has turned bearish for the first time since the last pullback in July 2024.
Bollinger Band Breakdown
The S&P 500 has also seen a slight break of its weekly middle Bollinger Band, with the lower band hovering around 5,500. This development, combined with the cumulative number of new NYSE highs minus new lows rolling over, suggests a potential sell signal. The latter indicator is now approaching its 50-day average, a reliable benchmark for identifying market shifts.
Breadth Weakness Persists
Market breadth, a key indicator of overall market health, continues to deteriorate. As the number of new highs dwindles and new lows increases, investors should exercise caution and closely monitor these developments to adjust their portfolios accordingly.
Staying Ahead of the Curve
In these uncertain times, it’s crucial to stay informed and adapt to changing market conditions. By keeping a close eye on these key indicators and trends, investors can make informed decisions to protect and grow their portfolios.
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