In mid-February, the S&P 500 and Nasdaq were hitting new highs. A month later, investors were wondering just how much pain could be inflicted on the markets.
From peak to trough, the S&P 500 fell 35.4%, a move that took about one month to play out. The decline was unprecedented in recent times as volatility surged to its highest levels in a decade.
For the Nasdaq’s part, the index fell 32.6% from its February peak to the March trough.
As dire as that month-long stretch felt, the rebound has been fierce. The Federal Reserve and various global central banks have dumped liquidity into the market, while bulls have stepped up in a big way.
Both indexes have rallied for three consecutive months, with each ending significantly higher in the second quarter.
Let's look at some charts as we head into the third quarter. Some prefer to watch the SPDR S&P 500 ETF (SPY) - Get SPDR S&P 500 ETF Trust Report and the Invesco QQQ Trust (QQQ) - Get Invesco QQQ Trust Report, which are fine too.
Trading the S&P 500
The S&P 500 rallied almost 25% in the second quarter, and while the index finished well off its June high, it was still able to eke out a 1.8% gain for June.
On the daily chart above, it’s clear that the 200-day moving average and 3,000 level continue to act as support. The 2,975 level is also acting as solid support. After clearing downtrend resistance (blue line), bulls are looking for more upside.
From here, we need to see the S&P 500 clear the 20-day moving average. Above that is the 78.6% retracement at 3,136, followed by 3,150 resistance.
If the S&P clears that zone, it puts the June high in play at 3,233, followed by the massive gap in February, between 3,250 and 3,350.
On the downside, keep an eye on 2,965, which is a very big level to take note of. A close below this puts the S&P 500 below the 200-day and 50-day moving averages, the key 3,000 level, 2,975 support and the June low. It puts 2,850 and potentially lower in play.
Trading the Nasdaq
Unlike the S&P 500, the Nasdaq has already reclaimed all of its losses and has actually hit new all-time highs. How many people thought that type of feat was in play a few months ago?
In early June, the Nasdaq pushed through its February highs and after a quick retreat, began holding this level (9,800) as support.
Now knocking on the 10,100 level, the index looks like it’s itching for another breakout. If it can clear 10,100, keep an eye on the June high up at 10,222. Above that mark and the index can rotate higher, potentially putting the 123.6% extension in play at 10,595.
After rallying more than 34% in the quarter and 6% in June, bulls are in firm control of the Nasdaq.
Look for a close below the 20-day moving average and uptrend support (blue line) as a sign that the winds are potentially shifting. Below 9,800 could put the 50-day moving average in play.