US Indices Are At Support: Will Price Bounce Or Break Through?

I have mentioned in my previous posts that being in tune with the seasonal movement of the market is essential as an investor. This has two main benefits:

  • Understanding when trends are likely, offering entry points and a time to act and build a portfolio.
  • It's about knowing when pullbacks are likely and being aware of when to stand aside and potentially look to buy in at pullbacks from solid support levels.

January/February and September are synonymous with pullbacks. This year has already delivered on that front. 

Whereas most will be panicking based on the noise in their media channels, good investors will remain objective, focus on the charts and already have a contingency plan in place that they are now executing. 

My bias overall still remains bullish. Let's have a look at the daily chart of each of the three major indices to understand why.

See Also: Superbubble? Legendary Market Pundit Says Stocks Could Fall By Nearly 50%

The S&P 500

The price continues to trade above the 200-day simple moving average (SMA). Today's price action has seen the price drop further but it has bounced intraday as expected with this major moving average also doubling up as a key level of support in a bull trend. As long as the price remains above the daily 200 SMA, my bias remains bullish. 

The Nasdaq 100

The price is currently trading just below the daily 200 SMA.

The Dow Jones 30

Like the Nasdaq 100, the price is also trading just below the daily 200 SMA. Do note that the S&P 500 is my primary indicator of market conditions. If it holds at the daily 200 SMA, as it is currently doing, then I expect the Nasdaq 100 and the Dow 30 to move back up their respective daily 200 SMA.

How does this translate to individual stocks?

Stocks that have been trending well for a number of months will be the ones that see the deepest declines. HubSpot HUBS is a good example. The price moved 320% from the breakout in June 2020 to the high of November 2021. The correction from the high is 45%. Below is the monthly timeframe. 

A handful of stocks will continue to trend, forming pullbacks in the trend. Berkshire Hathaway (NASDAQ: BRK-B) is a good example, a stock I covered in a previous post. The first potential level of support is the daily 20 SMA. Below is the daily timeframe.

As already mentioned, my stance remains bullish, and I monitor each stock individually. 

If the indices form a bear trend continuation below their daily 200 SMA, then my bias will change from bullish to bearish and when I will look to short the market as I did in 2008. For now, the price action is in a pullback until the structure of the trend dictates otherwise. 

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