The S&P 500 index entered a bear market territory briefly during its intra-day trade on Friday as it corrected 20% from its highs seen in January this year. However, a reversal late in the day pushed the index higher at the close and saved it from reaching official bear market territory. As of Friday’s trade on May 20, the index was down about 18% from its January 3 record high. The U.S. index’s slides come at a time of bleak economic outlook fueled by rising inflation and the Fed’s subsequent monetary tightening. In this article, let us find out what the charts are saying as the S&P 500 index trades below the 4,000 level currently.
S&P 500 index’s weekly charts suggest that markets are in an unclear territory
The weekly chart of the S&P index’s current market price (CMP) can be seen below the 50 EMA (Exponential Moving Average) and above the 200 EMA. The index broke out in a downtrend at the 4,350 level, from where it went below the 50 EMA support the previous month. If the market corrects even more from the current stage, it is likely to take strong support from the 200 EMA and is likely to rebound if it breaks upwards and crosses the 0.236 level of the Fibonacci retracement. The RSI indicator (Relative Strength Indicator) which shows the strength of the trends does not show either the bullish divergence or bearish divergence which indicates that the market is still in an unclear state for medium-term investing.
Exhibit 1: Weekly charts for the S&P 500 index
Source: Tradingview.com, data as of May 20, 2022
The daily chart of the S&P index shows that the CMP is way below the 50 and 200 EMA levels. Though it has taken support from the trendline and the last level of the Fibonacci retracement, investors and traders are likely to take the wait-and-watch move until it further goes down or takes a reversal. These indicators may show a strong view of the market going into an uptrend in a few days as the wick made is very long which eventually suggests that the bulls are trying to steal the move and make a bullish trend. There can be good opportunities for day traders for going long if there is a bullish opening, and for shorting if it breaks the current support levels.
Exhibit 2: Daily charts for the S&P 500 index
Source: Tradingview.com, data as of the closing of May 20, 2022
Dow Jones Industrial Average suggests markets are in a no trading zone currently
The Dow Jones Industrial Average (DJIA) is a price-weighted stock market index of 30 prominent companies listed on stock exchanges in the U.S. The weekly chart shows that the CMP is taking support from the trendline as well as the last Fibonacci retracement level. It did break the 50 EMA a month back, and since then it has been on a downward trend. Since the market structure is a bit uncertain, investors should wait for buying opportunities. The next support level is the 200 EMA and the next strong resistance is the 50 EMA. Currently, the index is trading in what is called “a no trading zone”. Investors and traders should keep an eye out for the next few trading sessions which might give a clearer indication for buying or selling.
Exhibit 3: Weekly charts for the Dow Jones Index
Source: Tradingview.com, data as of closing of May 20, 2022
The daily chart shows that the CMP is way below the 50 and 200 EMA levels. Though it has taken support from the trendline and the last level of the Fibonacci retracement, investors and traders will wait until it further goes down or takes a reversal. The last 4 candles make an evening star pattern. Moreover, the last trading day candle broke the trendline downwards. These indicators may show a strong view of the market going into an uptrend in a few days as the wick made is very long, which eventually suggests that the bulls are trying to steal the move and make a bullish trend. There can be good opportunities for day traders for going long if there is a bullish opening, and for shorting if it breaks the current support levels.
Exhibit 4: Daily charts for the Dow Jones Index
Source: Tradingview.com, data as of closing of May 20, 2022
The weekly charts for the NASDAQ index suggests markets going in an uptrend in the near term
The weekly chart of the Nasdaq Composite index shows that the CMP is between the 50 and 200 EMA levels. It has taken strong support from the 200 EMA and the 0.5 level of the Fibonacci retracement. Investors and traders will wait until it further goes down or takes a reversal from the CMP. A strong support of 200 EMA and the Fibonacci level shows a strong view of the market going into an uptrend in a few days. There can be good opportunities for investors for buying if there is a bullish opening, and selling if it breaks the current support levels.
Exhibit 5: Weekly charts for the Nasdaq Composite Index
Source: Tradingview.com, data as of the closing of May 20, 2022
The daily chart of the Nasdaq 100 index shows that the CMP is way below the 50 and 200 EMA levels. Though it has taken support from the trendline and the last level of the Fibonacci retracement, investors and traders will wait until it further goes down or takes a reversal. These indicators may show a strong view of the market going into an uptrend in a few days as the wick made is very long which eventually suggests that the bulls are trying to steal the move and make a bullish trend. There can be good opportunities for day traders for going long if there is a bullish opening, and for shorting if it breaks the current support levels.
Exhibit 6: Daily charts for the Nasdaq Composite Index
Source: Tradingview.com, Data as of closing of May 20,2022
Conclusion
The weekly charts for all the major U.S. indexes show uncertainty in the market for mid-term investing. However, the upcoming days would be crucial to decide the course of action the investors might want to take. The daily charts of all the 3 indexes show quite a similar market structure which suggests following the market for a trend reversal or a break down. The daily charts indicate good opportunities for day traders and swing trades. Further analysis can be done by studying charts at lower time frames for traders and investors to buy or sell.
