S&P 500 on Thin Ice as 4330 Support Level Faces Test

s p 500 on thin ice as 4330 support level faces test.jpg Business

The stock market, following a peak near 4600 in late July, has been experiencing a steady downtrend. However, the bull market appears to still be intact, according to an analysis by Lawrence G. McMillan, president of McMillan Analysis and an esteemed trader and money manager. McMillan’s analysis is rooted in the performance of the S&P 500 Index, which last week tested a major support area at 4330 and held firm. This support area is crucial for maintaining a "core" bullish position, with another support area existing at 4200.

The current rally, according to McMillan, could be a result of several oversold conditions. Typically, oversold rallies carry up to, and occasionally above, the declining 20-day Moving Average before they fail. With strong earnings from tech giant NVIDIA, the S&P 500 is predicted to exceed its declining 20-day Moving Average. This recent downturn also witnessed the S&P 500 trading below its -4σ "modified Bollinger Band" (mBB), culminating in a potential new McMillan Volatility Band (MVB) buy signal, which could materialise as soon as today.

Stock Market Analysis: Bullish Trend Continues Amid Market Volatility

Market Status: Bullish or Bearish?

The stock market, as gauged by the S&P 500 Index, witnessed a peak near 4600 in late July. Since then, the market has been experiencing a downward trend. However, the first major test of this pullback came last week when the S&P 500 hit the 4330 support area, which held firm. This behavior indicates that the bull market is still alive, as long as the 4330 support holds.

Oversold Conditions and Market Rally

The market has been oversold, which might explain the current rally. Usually, such rallies extend up to or slightly above the 20-day Moving Average before failing. With NVIDIA’s robust earnings announcement, it is expected that the S&P 500 will exceed its declining 20-day Moving Average.

Moreover, the S&P 500 has traded below its -4σ "modified Bollinger Band" (mBB), which successfully completed the McMillan Volatility Band (MVB) sell signal. This could potentially set up a new MVB buy signal.

Market Internals and Volatility Measures

The equity-only put-call ratios, which are considered "market internals," continue to rise, signaling a sell. Even amidst market rallies, there seems to be a significant amount of put buying, keeping these ratios on the rise.

Market breadth has been poor throughout August, with the breadth oscillators remaining on sell signals. However, volatility measures have remained subdued, indicating a bullish outlook for stocks. The volatility derivatives’ construct also remains bullish, with the VIX futures trading at relatively large premiums to VIX.

New Recommendations

Lawrence G. McMillan, president of McMillan Analysis, recommends a low-delta "core" bullish position as long as the S&P 500 remains above 4330. He also suggests potential trades based on the MVB buy signal and a recent weighted put-call ratio sell signal for Archer-Daniels-Midland (ADM).

Closing Remarks

While the stock market has seen some declines recently, key indicators suggest that the bull market is still intact. The market internals might be negative, and breadth may be poor, but volatility measures remain bullish. As always, investors should carefully monitor these signals and adjust their positions accordingly.

Author’s note: As a business journalist, my role is to provide accurate and timely information to readers. This article should not be considered as financial advice. Always do your research before making any investment decisions.

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