{"id":5225,"date":"2018-02-21T07:05:14","date_gmt":"2018-02-21T12:05:14","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=5225"},"modified":"2022-04-06T15:04:59","modified_gmt":"2022-04-06T19:04:59","slug":"sp500-feb-2018","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/sp500-feb-2018\/","title":{"rendered":"S&#038;P 500 Analysis: The Market&#8217;s Next Move After The Sell-off"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/sp500-feb-2018\/#2017_was_a_stellar_year_for_the_stock_market_but_an_inevitable_correction_started_to_hit_the_market_at_the_end_of_January_Here_is_our_%E2%80%9Cno_nonsense%E2%80%9D_technical_analysis_for_what_may_be_coming_next\" >2017 was a stellar year for the stock market, but an inevitable correction started to hit the market at the end of January. Here is our &#8220;no nonsense&#8221; technical analysis for what may be coming next.<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/sp500-feb-2018\/#The_Big_Picture_%E2%80%94_S_P_500_Weekly_Chart\" >The Big Picture &#8212; S&amp;P 500 Weekly Chart<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/sp500-feb-2018\/#Two_Possible_Scenarios\" >Two Possible Scenarios<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/sp500-feb-2018\/#1_Shallow_Correction_%E2%80%94_The_Worst_Is_Behind_Us\" >1. Shallow Correction &#8212; The Worst Is Behind Us<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/morpheustrading.com\/blog\/sp500-feb-2018\/#2_Deeper_Correction_%E2%80%94_2018_Could_Be_Challenging\" >2. Deeper Correction &#8212; 2018 Could Be Challenging<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/morpheustrading.com\/blog\/sp500-feb-2018\/#The_Even_Bigger_Picture_%E2%80%94_S_P_500_Monthly_Chart\" >The Even Bigger Picture &#8212; S&amp;P 500 Monthly Chart<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/morpheustrading.com\/blog\/sp500-feb-2018\/#Individual_Stock_Performance_Matters_More\" >Individual Stock Performance Matters More<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"2017_was_a_stellar_year_for_the_stock_market_but_an_inevitable_correction_started_to_hit_the_market_at_the_end_of_January_Here_is_our_%E2%80%9Cno_nonsense%E2%80%9D_technical_analysis_for_what_may_be_coming_next\"><\/span><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-5228\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2018\/02\/spx-selloff.png\" alt=\"sp500-2018-selloff\" width=\"450\" height=\"300\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2018\/02\/spx-selloff-110x73.png 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2018\/02\/spx-selloff-300x200.png 300w\" sizes=\"auto, (max-width: 450px) 100vw, 450px\" \/>2017 was a stellar year for the stock market, but an inevitable correction started to hit the market at the end of January. Here is our &#8220;no nonsense&#8221; technical analysis for what may be coming next.<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>With its <a href=\"https:\/\/money.cnn.com\/2017\/12\/29\/investing\/stocks-2017-wall-street\/index.html\" target=\"_blank\" rel=\"noopener\">best year since 2013<\/a>, the benchmark S&amp;P 500 Index jumped 19% in 2017.<\/p>\n<p>The S&amp;P 500 then kicked off 2018 with an impressive 7.4% gain through January 26.<\/p>\n<p>But even the healthiest of bull markets do not go straight up without significant corrections along the way.<\/p>\n<p>The start of February was the reckoning, as the S&amp;P plunged 10.1% (from Jan. 26 peak to Feb. 8 closing low).<\/p>\n<p>Stocks have bounced off their lows since then, but now must contend with massive overhead supply (resistance) from the sell-0ff.<\/p>\n<p>Continue reading to discover what the charts are indicating for the market&#8217;s next move in the near to intermediate-term.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"The_Big_Picture_%E2%80%94_S_P_500_Weekly_Chart\"><\/span><strong>The Big Picture &#8212; S&amp;P 500 Weekly Chart<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Stocks staged a substantial comeback last week, following a nasty two-week decline off the highs.<\/p>\n<p>The sell-off caused the S&amp;P 500 Index ($SPX) to slice through major support of its <span class=\"__postbox-detected-content __postbox-detected-date\">10-week <\/span>and <span class=\"__postbox-detected-content __postbox-detected-date\">40-week<\/span> moving averages (similar to 50-day and 200-day MAs on daily chart).<\/p>\n<p>The decline also caused an ugly, wide-ranged bar to form on the weekly chart, which should now act as overhead resistance (see horizontal line on the chart below).<\/p>\n<p>In addition to the prior high, the <span class=\"__postbox-detected-content __postbox-detected-date\">10-week<\/span> moving average is also acting as resistance &#8212; remember that <a href=\"https:\/\/www.dailyfx.com\/forex\/education\/trading_tips\/post_of_the_day\/2011\/05\/23\/Old_Support_Becomes_New_Resistance.html\" target=\"_blank\" rel=\"noopener\">former support levels become new resistance<\/a> after the support is broken.<\/p>\n<p>On the weekly chart of $SPX below, note that <strong>major resistance is in the 2,735 to 2,765 area:<\/strong><\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/%7Erick\/\/charts\/2016\/180220SPYY1.png\" alt=\"$spy resistance \" title=\"\"><\/p>\n<p>When recovering from a sell-off, stocks often fail to push through the highs of a wide-ranged selling bar on the first test of resistance.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Two_Possible_Scenarios\"><\/span><strong>Two Possible Scenarios<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<h3><span class=\"ez-toc-section\" id=\"1_Shallow_Correction_%E2%80%94_The_Worst_Is_Behind_Us\"><\/span>1. Shallow Correction &#8212; The Worst Is Behind Us<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Of course, anything can happen in the stock market, but we have laid out two possible scenarios that could happen from here.<\/p>\n<p>The first scenario is in play IF the S&amp;P 500 remains strong and finds <strong>support at its first pullback to the <span class=\"__postbox-detected-content __postbox-detected-date\">10-day<\/span> moving average<\/strong> (currently around 2,680).<\/p>\n<p>For this to be valid, such a pullback must not show any signs of institutional distribution (high volume selling).<\/p>\n<p>Ideally, a pullback from current prices should be on lighter volume than the preceding rally off the lows.<\/p>\n<p>Such a move would be quite bullish and potentially lead to the S&amp;P 500 reclaiming support of its <span class=\"__postbox-detected-content __postbox-detected-date\">50-day<\/span> moving average after a short rest.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"2_Deeper_Correction_%E2%80%94_2018_Could_Be_Challenging\"><\/span>2. Deeper Correction &#8212; 2018 Could Be Challenging<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>On the other hand, just about anything is possible IF the 10-day moving average fails to hold on a pullback.<\/p>\n<p>However, we would view any consolidation that develops <em>while holding the 200-day moving average<\/em> as constructive (in the 2,550 to 2,580 area).<\/p>\n<p>A re-test all the way back down to the 200-day moving average (which the index tested intraday on February 9) would suggest more time is needed to repair the technical damage from the sell-off.<\/p>\n<p>Both scenarios are annotated on the daily chart of $SPX below:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/%7Erick\/\/charts\/2016\/180220SPYY2.png\" alt=\"$spy support \" title=\"\"><\/p>\n<h3><span class=\"ez-toc-section\" id=\"The_Even_Bigger_Picture_%E2%80%94_S_P_500_Monthly_Chart\"><\/span><strong>The Even Bigger Picture &#8212; S&amp;P 500 Monthly Chart<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>When markets are in correction mode, it is helpful to zoom out and look at the really long-term charts to see the real &#8220;big picture&#8221; of the trend.<\/p>\n<p>The longer a trend has been in place, the more powerful the trend will be.<\/p>\n<p>As such, an uptrend on a monthly chart yields more power than a downtrend on a daily chart.<\/p>\n<p>On the monthly chart of the S&amp;P 500, a steady uptrend remains in place.<\/p>\n<p>The uptrend line that began with the 2016 lows was validated by the third touch of the trendline (the first two are just anchor points).<\/p>\n<p>If the S&amp;P continues to chop around for some time, then<strong> monthly trendline support should help create higher lows<\/strong> due to the higher support level in <span class=\"__postbox-detected-content __postbox-detected-date\">March.<\/span><\/p>\n<p>Check it out:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/%7Erick\/\/charts\/2016\/180220SPX3.png\" alt=\"$spy trendline support \" title=\"\"><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Individual_Stock_Performance_Matters_More\"><\/span><strong>Individual Stock Performance Matters More<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>While it is important to follow the price and volume action of broad market averages like the S&amp;P 500 or Nasdaq Composite, you <strong>should not focus only on these charts<\/strong> to determine the health of the market.<\/p>\n<p>The weekly charts of individual stocks, especially market leadership stocks, should <em>always <\/em>play a significant role in your analysis.<\/p>\n<p>If you would like to learn how to identify leadership stocks and when to buy them, <a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\"><strong>sign up now<\/strong><\/a> for your subscription to our nightly stock pick newsletter ($49\/month or $299\/year).<\/p>\n<p><em>Which scenario above do you think is more likely? Drop us a comment below with your thoughts.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>2017 was a stellar year for the stock market, but an inevitable correction started to hit the market at the end of January. Here is our &#8220;no nonsense&#8221; technical analysis for what may be coming next. With its best year since 2013, the benchmark S&amp;P 500 Index jumped 19% in 2017. The S&amp;P 500 then [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-5225","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5225","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=5225"}],"version-history":[{"count":1,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5225\/revisions"}],"predecessor-version":[{"id":11202,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5225\/revisions\/11202"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=5225"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=5225"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=5225"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}