The SPX fell 65.41 points or -1.58%, marking the largest single-day decline since late March 2023. The selling escalated into the end of the day as investors and traders feared the US economy slipping into the next recession. Also, concerns about the health of banks, specifically the regional banks and commercial real estate, returned after weeks of relative calm. Some believe the problems can lead to a credit or financial crisis.
What are the charts telling us about the stock market (SPX Index) going into the last week of the month and ahead of the FOMC meeting on Wednesday, 5/3/23?
Since the 10/13/22 low at 3,4991.58, SPX has experienced three rallies and two corrections. The violations of the short-term uptrends triggered the respective SPX corrections. Is the recent SPX downturn the start of the third correction?
During the 12/2-12/22/22 correction, SPX found support at 3,764.49 (12/22/23) or just above the 61.8% retracement (3,724.5) from Oct-Dec 2022 rally.
The second correction occurred as the 2/17/23 uptrend and downside gap breakdown led to a deep correction that violated the 61.8% retracement (3,929) and the 76.4% retracement (3,866.5). The sharp 2/2-3/13/23 correction finally bottomed out at 3,808.86 (3/13/23) or near the previous 12/22/22 reaction low (3,764.5).
A third uptrend breakdown on 4/21/23 triggered the recent 5-day correction of -2.35%. The pullback nears crucial initial support at 4,032-4,035 (38.2% retracement from the 3/13/23 to 4/18/23 rally and the 50-day ma).
The ability to maintain support suggests SPX can retest initial resistance at 4,169.48-4,195.44 (Feb and Apr 2023 highs). Above this pivotal resistance confirms a breakout and the resumption of the SPX rally toward 4,325.28 (8/16/22 reaction high).
On the other hand, violation of 4,032-4,035 warns of a deeper correction to pivotal secondary support at 3,947-3,993.5 (50%-61.8% retracements, the 3/29/23 gap-up, and the 200-day ma) and below this 3,885-3,886 (1/19/23 low and the 78.6% retracement), and 3,808.86 (3/13/23 reaction-low).
Does this set up a double bottom/double top pattern ahead of the summer months?
Since the technical base is 386.58 points, the outcome of the double top or double bottom pattern will help to decide the next directional trend.
If you side with the bulls, a convincing breakout above 4,169.5-4,195.5 signals the next SPX rally toward 4,325.28 (8/16/22 reaction high) and above this 4,582 (double top/bottom breakout projection).
If you side with the bears, a convincing breakdown below 3,764.5-3,808.86 warns at the next SPX selloff toward 3,491.58 (10/13/22 reaction low) and below this 3,378-3,422 (breakdown target).