As a supplement to yesterday’s post, the below chart is a longer lookback at Small Cap stocks.
Note the area that’s circled. It’s rare that the index hugs its 1,000 day moving average (dma). The concern is that a drop below the 1,000dma generally indicates a recession and that more bad things are yet to come. For now, the index is just slightly below its 1,000dma but on a positive note, the 200dma appears to have found support at this level.
If the Small Cap index and its 200dma drop below the 1,000dma for a sustained period of time, then the Market is likely in for a steep selloff.
On the other hand, and from the perspective of the S&P 500, watch the 4200 level. That’s roughly the halfway retracement point from the Jan ’22 high to the Oct ’22 low. If the S&P 500 can hold above that resistance area, then the worst is likely over. For now, the S&P 500 hasn’t been able to get above that level since Aug ’22.
So, will the Market breakout or breakdown? No one knows. Be patient.
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