SPX -What's next after historic drop?

$S&P 500(.SPX)$ suffered a huge drop of close to 156 points on Apr 29 close. All in all, it has dropped –13.3% from Jan 4 all-time-high (ATH) closing high of 4793.54, the worst start to the year since 1939 (see table below).

source: Compound Capital Advisors

So what’s in store for the Index, widely regarded as the barometer of the overall US stock market, this coming week?

More Volatility

First, I’d expect volatility to remain high ($Cboe Volatility Index(VIX)$ last closed, 33.4) given more S&P 500 constituent companies reporting Q1 earnings, FOMC Meeting Fed rates decision mid-week, and NFP April jobs numbers to round off a big week.

History Lessons

Historically, based on $SPDR S&P 500 ETF Trust(SPY)$, the one day drop of – 3.7% at end of the month was the second worst since 1990s (see table below first column). What happens the next trading day, in our case today May 2 (third column) is anybody’s guess unfortunately, although on average it looks less likely, but just by a little, to be positive (46.15% chance). Something to be optimistic about is there is close to 70% chance we will end the month of May in positive territory (Following month % Chg, last column)

source: Bespoke Investment Group

Trade the Price Action

In terms of price action, $S&P 500(.SPX)$ has been on a downtrend since ATH in Jan 2022 (see Daily chart below).

Daily Chart $S&P 500(.SPX)$

For upside scenario, price action shows a likely double bottom bullish pattern, which might give a bounce of potentially up to 85 points or about +2%, to 4200 round number level. However, price might drop below recent low of 4118.65 before rebounding. If the rally up has some legs, then next stop is likely around 4280, coinciding with 0.236 Fib level. $E-mini S&P 500 - main 2203(ESmain)$ index futures price is up around +0.4% at time of posting, and as price action has been respecting the Fibs levels well on Daily chart, there is a good possibility of an up day.

For downside scenario, price might break down (fake breakout) in regular trading hours (RTH) and fall further to 4080. As this level looks like a relatively weak support, price could likely drop all the way to 3960 (further –2.94% drop).

I’m ready for both scenario, and would trade based on price action, setting stops that are wider due to higher volatility.

Here's wishing you all a profitable trading week ahead.

# 💰 Stocks to watch today?(22 Nov)

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  • CitizenBane
    ·2022-05-03
    Let's hope so! "70% chance we will end the month of May in positive territory"
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    • surfer guy
      Sell in May and go away? not in 2022. Let’s see [Onlooker]
      2022-05-04
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  • nimbly
    ·2022-05-02
    Your strategy is very wise.
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    • surfer guy
      Thank you for your feedback. Just trying to trade well and see what market gives
      2022-05-02
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  • pixiezz
    ·2022-05-02
    I think it is worth to bullish.
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    • surfer guy
      Can try not sure if market will surprise us
      2022-05-02
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  • BurnellStella
    ·2022-05-02
    The index is too weak.
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    • surfer guy
      Yes weak for now hope it gain strength in next few months
      2022-05-02
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    • BurnellStellaReplying tosurfer guy
      The key is fed policy.
      2022-05-03
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  • MortimerDodd
    ·2022-05-02
    I believe most people remain pessimistic at the moment.
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    • MortimerDoddReplying tosurfer guy
      There are a lot of opportunities in the market right now.
      2022-05-03
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    • surfer guy
      Yes when everyone is getting more pessimistic that means usually we are near bottom [Sly]
      2022-05-02
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  • YiCheng0301
    ·2022-05-04
    I see this as a opportunity for me to be in advantageous position during wealth redistribution!
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    • surfer guy

      Good point, thank you for your thought

      2022-05-05
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  • JntEu
    ·2022-05-05
    Thanks for sharing and nice write up
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    • surfer guy
      Thank you for your support and enc ouragement [ShakeHands]
      2022-05-05
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  • juvefreak
    ·2022-05-05
    Waiting for further dip
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    • surfer guy
      Sounds like a plan
      2022-05-05
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  • CET 789
    ·2022-05-02
    [Cool] [Cool] [Cool] [Cool]
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    • surfer guy
      [Cool] back !
      2022-05-02
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  • EvanHolt
    ·2022-05-02
    Hopefully nasdaq will lead the market up.
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    • surfer guy
      Yes hope so too
      2022-05-02
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  • surfer guy
    ·2022-05-03
    Well, the upside scenario played out. As expected went lower to 4062 bit beyond 4080, then reversed up to as high as 4169. Lets see if it has some leg to reach 4200 or will it reverse Tue [Thinking]
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  • surfer guy
    ·2022-05-02
    My apologies, here's the updated post. Have to delete and repost due to some typos spotted. Have a good day and week trading and investing ahead! 
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  • 北纬1度线
    ·2022-05-04
    [财迷] [财迷] [财迷]
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  • GD Hazel
    ·2022-05-05
    Like
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  • SandDust
    ·2022-05-05
    Good
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  • MelChen
    ·2022-05-05
    [Speechless]
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  • Ra007
    ·2022-05-04
    Good one
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    • surfer guy

      thank you for support

      2022-05-05
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  • rL
    ·2022-05-04
    [Strong]
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  • FionaWu
    ·2022-05-04
    I awe
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  • Dave0123
    ·2022-05-04
    ok
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