The S&P 500 Broke Its 200-Day MA. What Its Chart Says Now
The $S&P 500(.SPX)$
The S&P 500's Fundamental Analysis
The entire ball game for U.S. equities has changed rather quickly as hopes have risen somewhat for an end to both the Iran War and Big Tech's recent sell-off.
First, The Wall Street Journal reported last week that U.S. President Donald Trump had told those around him he'd be willing to end America's Iran operation even if the key Strait of Hormuz remains closed.
Trump also publicly said the U.S. military will be leaving Iran in two to three weeks.
Then reports later in the week pointed to a real chance for peace in the Middle East – with Trump seen as unwilling to push the war out further out than the six weeks he projected in late February.
Meanwhile, Iranian President Masoud Pezeshkian reiterated that his nation is ready for the war to end, but needs some guarantees.
At the same time, some ships are already getting through the Strait of Hormuz seemingly unharassed.
That could either mean the Iranian military is running out of munitions or that it's been directed by leadership to back off of the key shipping route, which normally hosts tankers carrying some 20% of worldwide oil output.
All of this caused the S&P 500 (.SPX) and other key indexes to rise sharply last Tuesday, with gains extending into Wednesday as well. Markets apparently found the concept of peace sooner rather than later to be positive.
The S&P 500's Technical Analysis
Now let's look at the SPX's chart going back some four months and running through last Wednesday afternoon (April 1):
We will first see that the index came out of a triple-top pattern of bearish reversal as the Iran War got underway.
As things broke down, the S&P 500 surrendered three key support levels. The index lost its 50-day Simple Moving Average (or "SMA," marked with a blue line), its 200-day SMA (the red line) and its 21-day Exponential Moving Average (or "EMA," denoted by a green line).
We will also see that the S&P 500 either confirmed or re-confirmed this downtrend by volume four times before Tuesday's sudden bullish reversal.
However, the index has been making a run back at both its 21-day EMA and 200-day SMA after sitting below the 200-day line for 10 days. Retaking the 200-day SMA would likely cause portfolio managers to consider increasing long-side exposure to U.S. large-cap markets.
Last Tuesday also saw a clear-cut indication of what's called a "Day One" bullish reversal of trend on increased trading volume for the S&P 500.
However, this particular technical indicator requires a second "Day of Confirmation" for validation -- and there must be a non-bullish (neutral) pause between the "Day One" and "Day of Confirmation" bullishness.
So, while the S&P 500's second day of gains on Wednesday was nice news, in technical-analysis terms, it was just an extension of the "Day One" bullish pattern.
The index still needs a pause and a later "Day of Confirmation" to validate this technical indicator.
Moving on to other technical signals in the above chart, the S&P 500's Relative Strength Index (the gray line at the chart's top) has moved from technically oversold to a neutral reading in less than two days.
Additionally, the index's daily Moving Average Convergence Divergence indicator (or "MACD," denoted by blue bars and a black line and gold line at the chart's bottom) has been improving rapidly as well.
While this indicator still needs some help, the histogram of the S&P 500's 9-day EMA (marked with blue bars) has been moving towards the zero-bound. Taking that level would be a short-term bullish signal.
Additionally, the S&P 500's 12-day EMA (the black line) has made contact with the index's 26-day EMA (the gold line), although both lines are still well below zero. A crossover that sees the black line going above the gold one would be an additional, medium-term bullish signal as well.
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