We have been stuck in a strange business environment for a while. Although the S&P 500 continues to rise, it has not been an easy trade.
The upward movement has been slow with bear markets in high-growth tech stocks and cryptocurrencies. Metals, consumer staples, financials and industrials have all performed well, as have value stocks.
Large-cap technology is doing better, but it’s still a mixed bag. While Nvidia (NVDA) – Get report and Facebook (full board) – Get report they’re sailing higher, apple (AAPL) – Get report and Amazon (AMZN) – Get report They continue to languish, although Apple’s WWDC event on Monday could help.
Then add comments from the Federal Reserve, concerns about inflation and the new global fiscal plan and just make more headlines.
This waxing and waning headwinds and tailwinds has given ammunition to both bulls and bears to justify their position.
Perhaps what has tipped the market in favor of the bulls has been the Fed’s solid earnings and easy money policy. As we continue to melt into the summer, let’s look at the S&P 500.
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Trading the S&P 500
It’s worth noting that you can’t buy stocks in the S&P 500 index. While investors can trade options on the index, something like the S&P 500 futures or the SPDR S&P 500 Trust ETF. (TO SPY) – Get report should be used for most investors.
Amid the S&P 500’s run to the upside, the index has largely risen from the 50-day moving average. We saw the index visit this key measure twice last month and both times that test resulted in a significant rebound.
On the upside, the bulls face a tough test at the 4.238 level. This mark has been resistance multiple times over the last month and each time it has turned down the S&P 500.
If you can clear this level, we could see a move towards 4,300. If the index really gains momentum, the 161.8% spread stands at 4,350.
On the downside, I want to see the 10 and 21 day moving averages act as support. This was the case late last week, when the index found its base at the 21-day moving average and the 61.8% retracement of the current range.
The latter comes into play around 4,169 and that level has been significant since the end of April.
Below 4,169 the 50-day movement is put into play again. If that area is tested, it will be a mild dip. However, a breakout of the 50-day moving average could put May lows into play, along with the 21-week moving average.
The bottom line: Look at 4,238 to the upside and 4,169 to the downside.