Is it just me or is this year flying by? Wednesday marks the last day of the second quarter and investors will be turning their attention to the third quarter and the second half of 2021 starting on Thursday.
The stock market has done incredibly well so far this year. While tech has seen a bit of wavering - as growth stocks plunged into a bear market - the Nasdaq has posted a nice recovery and recently hit all-time highs.
In fact, the steadiness of this group - accounting for trillions in market cap - is likely what has helped push the S&P 500 to new heights as well.
The S&P 500 has risen about 8% for the quarter and has gained more than 14% so far for the year. It would be unfair and unrealistic to expect a repeat of performance in the second half. Although anything is possible, particularly with the Fed’s accommodative monetary policies.
That said, there will likely be some hiccups along the way.
Trading the S&P 500 in the Third Quarter
The index has made four new all-time highs in a row and is working on its fifth straight all-time high on Wednesday. In other words, it’s trying to go out on a high note for the quarter.
A quick glance at the chart above shows just how strong the recent trend has been. For the most part, the 50-day moving average has been a pretty good guide, with many dips to this area finding support and bouncing higher.
On a few occasions, the index pushed lower and tested into or near the 21-week moving average.
The last few months have resulted in some somewhat choppy price action. Now that the S&P 500 has burst to new highs, it would be nice to see a shallow dip.
Specifically, a decline to the 10-day moving average would be appropriate, but even better would be a decline to the 4,238 area and the 21-day moving average.
The 4,238 mark was the prior all-time high from early May and was a key level in the weeks since. Breaking out over this level, then retesting it and finding as support would only strengthen the bull case.
Until proven wrong, bulls have to continue to assume that the 50-day and 10-week moving averages will be support. On a larger correction, the 21-week moving average needs to be in focus.
I know, I know... all trends must come to an end at some point and it seems like the market is running on nothing but hot air.
Combine that with a reopening economy and an easy-money policy from the Fed and the bulls case is there. Don’t forget that we’ll get earnings in a couple weeks too, which could help drag the index up to that 161.8% extension at 4,350.
But a shallow dip first would be beneficial.