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What’s the Technical Setup for the S&P 500?

What’s the Technical Setup for the S&P 500?

February 15, 2022
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Stocks are off to a rocky start this year, with the S&P 500 Index beginning a correction almost immediately at the turn of the calendar year. The benchmark index fell nearly 12% from its January 4 record closing high through its intraday low on January 24, roughly double the worst pullback it saw in all of 2021. But is the volatility over, or is there more to come? Today’s blog takes a technical-focused look at key levels for the S&P 500 and what we will be looking for to call the all-clear.

First up, the chart. As shown in the LPL Research Chart of the Day, the post-correction rally reached its high point on February 2, stopping at 4595, which was not only resistance from a mid-January intraday low, but also happens to be the 61.8% Fibonacci retracement of the correction decline. Fibonacci retracements are common levels that traders look to for rallies or bounces to stall, and while they certainly aren’t expected to work every time, it may be more than a coincidence that this is where the latest rally found it’s high point.

That 4595 level showed its significance again this week, as stocks were rejected there on both Wednesday and Thursday, an especially important period as the market anticipated and then digested yet another hot inflation report and the bond market moved to price in a 50 basis point rate hike at the March Federal Reserve meeting.

So is a retest of the lows forthcoming? “There’s no rule that says we have to revisit the late-January lows,” said LPL Financial Technical Market Strategist Scott Brown. “But with longer-term market internals questionable and this week’s rejection at resistance, it seems that bears still have the upper hand. We see first support for the index at 4450, but a move below that could set up the classic retest many investors have been conditioned to expect”.

Midterm years have a reputation for volatility, and while so far the action seems limited to factors outside the world of politics, 2022 is certainly living up to its reputation. We believe it is important for investors to remember that price action like we have seen so far this year is far more normal than the straight line higher that we experienced in 2021. On any move lower, we will be looking for positive divergences in the number of stocks making new lows to signal a buying opportunity, while a move through 4595 on a strong breadth would be a positive step for equity bulls.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

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All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

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