Assessing This Week's Technical Damage To The S&P 500 Chart

Another volatile week of trading once again has traders worried about a potential U.S. recession and the beginning of a bear market for the S&P 500. The index closed Friday at 2,633.08, down 2.3 percent.

The SPDR S&P 500 ETF Trust SPY dropped nearly 3 percent this week, but a look at a chart of the index suggests the technical damage done may not have been too terribly bad.

Higher Lows

The S&P 500 dipped as low as 2,621 on Thursday before bouncing back into the close. Although the S&P 500 ended the week on a low not Friday, Thursday’s low was far from a technical breakdown. In fact, it was slightly higher than the S&P’s intraday low of 2,603 back in October.

Going back even further, the potential October/December double bottom at around 2,600 is also slightly higher than the S&P 500’s double bottoms at around 2,550 in February and March of this year. In other words, assuming no further lows are on the way next week, the S&P 500 appears to simply be putting in a series of higher lows, typical behavior for a bull market.

Red Flags

At the same time, there are certainly red flags that technical traders are watching as well. The S&P 500 may not have made new intraday lows Friday, but its closing low was its lowest since April, a potential red flag. In addition, the biggest potential sell signal generated this week was a death cross in the S&P 500 chart.

A death cross occurs when the 50-day simple moving average crosses below the 200-day SMA, typically seen as a bearish sign. The S&P narrowly avoided a death cross after its March sell-off, but it was unable to dodge the bullet again this month.

The last time the S&P 500 experienced a death cross was January of 2016 when the index was trading at around 1,920. In the six months that followed, however, the S&P 500 bounced back and gained 10.8 percent.

Key Levels

Looking ahead to next week, intraday lows below October’s low of 2,603 and/or a close below around 2,633 would be bearish for the market in the near-term. In addition, any subsequent close below March’s closing lows of around 2,575 would be a potential technical signal that a bear market has begun.

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