Stocks are at a critical short-term juncture. The S&P 500 is sitting on support just below its 200-day moving average. The last time it undercut that moving average it marked an important bottom, which was followed by a 15 percent advance in the subsequent three months.
We don’t have investors anticipating a new round of quantitative easing this time around, however. So if we do bounce from here, the gains are likely to be limited. We would expect to see the rally stall at its 50-day moving average, some 4 ½ percent above where the average closed today. Twice the index tried and failed to climb above that 50-day in the last few weeks.
On the other hand, we can’t say this correction has run its course yet. And it’s not hard to envision further selling that stops about 10 percent from the September high. That selling would take the S&P down to around the 1315 to 1320 area. That, incidentally, would represent roughly a 50 percent retracement from the 52-week lows, which a lot of technicians will have their eye on as an important pivot point.
Earnings season is winding down and the economic calendar is fairly light this week. Traders will be watching retail sales and business inventories on Wednesday, jobless claims and readings on business conditions from a couple of Fed banks on Thursday. And on Friday it will be industrial production and net flows of Treasury securities.
Let’s see how things play out.