S&P 500 thoughts: A moderate or severe correction?
I've defined a bearish crossover as the short-term moving average (20-day, red) crossing below the medium-term (50-day, black) moving average. This event occurred on September 22.
Here is how I am thinking about the next few weeks.
The way price reacts after this crossover is important in assessing the likelihood of a severe or moderate outcome.
Two takeaways from the chart:
1. In moderate events, the correction tends to find a bottom in close proximity to the crossover point. The instances marked from this year, on average, witnessed a decline of 7.5%
2. In severe events, prices continue their descent, and any relief rallies face resistance around the short and medium-term moving averages. In 2022, severe events saw declines ranging from 13% to 20%
The decline from the July peak through September is 6.9%, which falls in line with a moderate outcome. If the correction has indeed found its bottom, we should expect to see prices promptly rebound above the key moving averages. Failure to do so increases the likelihood of a severe outcome.
The moving averages currently converge around the 4400 level. To simplify this concept: if $S&P 500(.SPX)$ prices consistently maintain trading and closing above the 4400 mark, it is likely that the correction phase has come to an end, otherwise look out below.
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Source: https://twitter.com/tomthetrader1
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