Did the Stock Market Peak? Let’s Check the Charts

The stock market got hammered Thursday with the major averages off about 7%. Let's look at the charts to see what may come next for investors.
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The stock market has been on fire since the March lows but equities are under heavy pressure on Thursday.

The S&P 500 is down more than 4.5% so far on the day, the Russell is down more than 6% and the Dow Jones Industrial Average is off about 1,400 points.

Even with sizable selling on Thursday though, it’s hard to be too much of a complainer after the S&P 500 ran 47.5% in just 53 trading sessions, ultimately topping out earlier this week at 3,233.

Worries over a second wave of coronavirus are weighing on investors a day after we heard from the Federal Reserve. 

Travel stocks like United Airlines  (UAL) - Get Report, American Airlines  (AAL) - Get Report, Boeing  (BA) - Get Report and Carnival (CCL) - Get Report were getting hammered too. Tech isn’t being spared either, even though the Nasdaq is down “just” 3.75% on the day. Let’s look at the market and see what’s going on.

Trading the S&P 500

Daily chart of the S&P 500.

Daily chart of the S&P 500.

Above is a look at the S&P 500 Index, although many investors may prefer to trade the SPDR S&P 500 ETF  (SPY) - Get Report and that’s fine too.

The chart draws mixed emotions. On the downside, we’re moving considerably lower on heavy volume. As of 1 p.m. ET, the NYSE registered a 97% downside volume day.

Further, there has been no strength in the market thus far, with continual selling pushing it lower and no hourly rotations higher. That said, the market has been on a big run — up 47.5% from the lows — and letting a little air out may be seen as healthy price action.

The S&P 500 gapped above the 78.6% retracement on Friday, then gapped below it on Thursday. The index is now coming into the major breakout area from Q4 2019, as well as the 20-day and 200-day moving averages.

That gives short-term bulls a solid risk/reward setup, with plenty of support nearby. Essentially, buying against 3,000 could set up for a move up to and possibly through 3,100 in the short term. A gap fill will put the S&P 500 back up toward 3,175.

This isn’t a routine pullback in the sense of the one-day move, and admittedly, I’m a bit hesitant given the size of the prior rally and the downside volume we’re seeing on Thursday. But a dip into a critical zone tends to be bought during uptrends rather than sold.

Should support break, then bulls will have to get more tactical. A move below 3,000 puts the 61.8% retracement and uptrend support in play near 2,935. Below and the 50-day moving average is a possible downside target near 2,900.

Has the market topped? Thursday’s price action isn’t great, but the market was overbought this week. Let’s see how this current shakeout ends before we start calling for a retest of the lows in the S&P 500.