Stock Market Retreat: Deviating from the Mean

Throughout the night, the S&P 500 futures primarily maintained their position above the 21-day Exponential Moving Average (EMA). Despite this, the index encountered difficulty surpassing the 4,000 level. Ultimately, the futures dipped below the 21-day EMA as the opening bell approached. Concurrently, each sector across the indices exhibited a downward trend, potentially signaling weakness before the commencement of the cash session.

Bear Thesis Presented at Critical Level

In a previous Simpler News article, a bear and bull thesis was created using the 21-day EMA and the psychological level of 4,000. By the time the opening bell sounded, the bearish case had become more probable as the criteria were being set for the move lower. A direct quote from the article laid out what to watch for.

“Closing just 6 points above the 21-day EMA does not guarantee a definitive new uptrend. In fact, a strong bearish trend often resets at this level before initiating another substantial downward leg. The bearish scenario involves the market falling below the 21-day EMA and remaining below the 4,000 level, thereby creating ample room for further decline.”

Bear Thesis Unfolds Perfectly

As the opening bell rang, the market had already slipped below both the 21-day EMA and the 4,000 level, suggesting a downward trajectory. In trading, patience is indeed a virtue; a confirmation of the decline would involve a retest of these levels and their subsequent resistance during the cash session.

This patience proved rewarding as the retest occurred and was soon followed by confirmation. The market made two attempts to reclaim its position above the 21-day EMA, but selling pressure near this level ultimately drove the index lower, allowing the bearish thesis to materialize.

Two of the three identified downside targets were met, as both the 15 and 200-day Simple Moving Averages (SMA) were breached. The more substantial target below remains the psychological threshold of 3,900. Today’s selling volume was insufficient to reach this final objective; however, should the selling pressure persist next week, that target will continue to be relevant.

Targets for the Market Next Week

In the coming week, the market will contend with the 15 and 200-day Simple Moving Averages (SMA), which now lie above and may serve as resistance. Given the recent market uptick driven by optimism surrounding the prevention of bank collapses, it is crucial to recognize that the macro sentiment remains uncertain for investors. 

Today’s market activity demonstrates that the situation is still in flux as events continue to unfold. TG Watkins and Sam Shames shared their insights on the ongoing banking crisis and its potential implications for the market’s future trajectory. You can listen to their comprehensive discussion in the audio clip available here.

Catalysts for Next Week

The three biggest Economic catalysts that the market will undoubtedly react upon are:

• The Federal Reserve’s (Fed) interest rate decision
• Fed Chairman Powell’s press conference
• The S&P Global U.S. Services and Manufacturing Purchasing Managers Index (PMI) numbers

The interest rate decision will come at 2 p.m. Eastern on Wednesday. Soon after the announcement, Powell will have his press conference at 2:30 p.m. On Friday, both PMI reports will be released at 9:45 a.m. Eastern. 

Market Runs into Resistance, Moves Lower

The Nasdaq and the S&P 500 were negative to close the session. The S&P 500 futures closed down 1.05%, declining 43 points, while the Nasdaq futures closed down 0.37%, losing 46 points. The Dow Jones futures followed, closing down 1.21%, a loss of 393 points.