SP500 On Verge Of Breakdown | Episode 115

By Jason McIntosh | Published 10 March 2023

Trade the Trend is a weekly video focusing on where the stock market is going. It’s for investors and traders looking for technical analysis of the SP500, as well as stock markets and commodities markets in general. Jason uses technical analysis of stocks and trend following techniques to help you piece together the world’s biggest puzzle.

Where is the Stock Market Heading?

00:00 Intro

00:30 SP500 opens a window (you mightn’t want to look through)

03:20 The Dow is potentially showing the way

05:20 Important sign in this key sector

06:10 I got this wrong back in February

07:32 This market is bucking the trend (is this a sign?)


Please note: Charts available from video

This video is going to focus on the S&P 500. I’m going to cover the ASX 200, as well as copper, gold, oil, and uranium in a separate video, and I’ll leave a link for that in the description section below. I’m also going to have a look at the Dow and the NASDAQ in this video, so make sure you stick around for that. As always, this is general commentary. It doesn’t take your personal situation into account. With all of that said, let’s get into our first chart.

So, S&P 500. Well, a lot’s happened since last week. The technical position has really started to deteriorate, particularly over the last couple of days. And the S&P 500, it really is on the verge of a breakdown below this key support at around 3,900.

Now, last week when I spoke to you, the market was testing this support at 3,900, and I said that it really was a delicately poised situation. There was an attempt to buy the dip on Friday, a little bit of follow-through on Monday. But then since then, the S&P 500 has been selling off, and quite an aggressive sell-off on Thursday. So, of course, I’m recording this before the jobs data on Friday, so I’m yet to see what happens on Friday.

But regardless of what happens, it’s like assessing this current situation and seeing where things could go. And I think that one of the big negatives for me is that, so far, the price action on Thursday broke below last Friday’s low. So, that does open up a window of vulnerability, and the obvious place for stop losses. So, anyone who’s been playing the momentum, maybe even the momentum from the bounce last Friday or more so from levels back in December or earlier, an obvious place to have stop losses is just below where the market is now.

So, maybe around 3,840, 3,850, you start getting stop losses, and also below last Friday’s low, which is some of the selling we may have seen on Thursday. So, the risk is, what happens if this market can test a bit lower and trigger some of those stops? What happens then? What follow-through do we get, or do we get follow-through? And that’s the key for figuring out how this is going to play out. There’s a big camp that believes this market is heading for new lows.

That could be the case. We can’t rule that out whatsoever. At the moment, we need to see what happens at this support level. Is this support going to hold, or is it going to break? And it is at that vulnerable point now I think going to find out very soon whether we get the breakdown, what happens when the stops get triggered? Do we get fresh selling coming through? Another day like Thursday would really do a whole lot of technical damage.

Now, going over and having a look at the Dow. This has been an important piece of the puzzle over the last several months, an important piece of identifying that upward momentum that we have had in place. And this is now becoming a point of concern. Last week, I was talking about the… Well, back in February, I was talking about a potential of a retest of the Fibonacci region. We got that. We started to get to see that a week or two ago.

So, last week, I talked about how we had the classic zigzag, the A, B, C zigzag corrective formation, and we started to see the Dow bouncing off the Fibonacci region, which was encouraging, but again there wasn’t follow-through buying. It’s come back, broken below last week’s low, and then fallen deeper into the Fibonacci range. Being further into the Fibs isn’t necessarily such an issue, but what is an issue for me is…

Let me just take off these Fibs. What’s more of a concern is the break of support. So, if we go and we just put in some support in around this region here, and it can actually extend over a little bit further. Let’s just tighten that up and say there’s a support zone there at around 32,700. And it’s held the market since back in November. That’s now broken. So, that’s a concern. That’s a concern that we do have that break.

Again, will there be follow-through selling? We’re going to see shortly. Also of concern is these moving averages continue to roll over. I mentioned that last week, and that remains the case now. We’re even now further below the moving averages. So, it adds to some of the vulnerability, and the risk window that is, I think we’ve got to say now is well and truly open.

Another area of the market I’ve been watching is the financial sector. This is a financial sector ETF. So, it gives a good idea of what’s going on within banks, within brokers, insurance companies, financial sector generally. Big move to the downside on Thursday. And that does a lot of technical damage to this chart. We did have a good momentum-based recovery in place. This sector of the market was comfortably above the moving averages, pulled back to the averages. Not a problem there.

Now, this sharp break below, that does a lot of damage. I’d expect that this isn’t going to be the low point. Once you get a hard move down like we saw on Thursday, closes near the low, it almost always tests lower. How much lower? We don’t know. So, it just adds to that vulnerability. Also, something which I’m watching which is important to be aware of is the high-yield corporate bond ETF. This is selling off.

So, this means high yields for junk bonds, for the corporate high-yield bonds. Now, back in February, I made a point of this back in early February. I thought this was starting to turn the corner. We had the moving averages turn to the upside. We had a break to a new high, the highest level since back around August ’22. There was no follow-through. It’s since rolled over and it’s been consolidating beneath the moving averages over the past few weeks.

Moving averages now crossed to the downside, and it looks like we’re now starting to break below out of that consolidation. So, these are the negatives, these are the risk points, and these are the worries that I have with the current market setup, and that I think we all need to be well and truly aware of with managing the risk of the current environment. Now, I’m going to have a look at the NASDAQ.

But before I do, if you’re getting some value from this, please hit that like button. Please leave a short comment, just “Hey, thanks for the video.” It just tells YouTube people are watching. YouTube will then show more people, and that helps me a lot. And hit that Subscribe button if you haven’t already done so. Now, NASDAQ. Let’s have a quick look at that to finish up because this is a little bit different. It’s a little bit different to the other two in that the NASDAQ hasn’t made a new low yet.

So, we’ve got a low from last week and the NASDAQ is yet to break that low, at least at the time of filming. So, as always, I film these on Friday afternoon in Sydney because I can’t spend Saturday morning doing videos. So, I miss that one session in the U.S. market, but that’s how it is. I can’t do these on Fridays. Those who want them on Fridays, Friday’s action, sorry, I just can’t record these on Saturday. So, maybe we’ve got a new low by the time you’re watching this.

And the thing is, for me, when I look at this chart, if you were to put this chart in front of me, take the name off it, just put the chart in front of me, I’d look at this in a positive light. I’d look at this and I’d see this bullish wedge formation that the market’s broken up from. I’d see the break above support. I’d see the positive moving averages, prices above the moving averages. I’d see a rounding-basing type formation.

I’d say, “This is a market I’m interested in,” and I’d say that I’d want to buy above last week’s high, a break above last week’s high. I’d want to get long. And that’s quite confusing when I look at that in the light of all the other things which I’ve been through in this video. And so this one currently doesn’t align with the deteriorating picture I’ve seen in the S&P and the Dow, junk bonds, and the financials. So, this, on its own, it’s not enough to say that support is going to hold and that the market is going to rally off this support. But the thing is nothing is certain.

There are a lot of people who talk with certainty about what will happen, both positive and negative, but nothing is certain. And this piece of the puzzle currently doesn’t align, so it’s a little bit… For me, it’s conflicting, and it means that I’m not in a rush to sell my entire portfolio based on what’s happening in the Dow and the S&P. They’ve had some negative days. They don’t look great. Looks like there’s a considerable vulnerability there. This doesn’t align at the moment. Maybe it’s going to align tonight with a big down day and that clears that up, but it hasn’t at the moment.

So, as I said, I’m not rushing to sell my entire portfolio, but I have been selling stocks that are breaking down, and I’ll continue to do this. So, I think the risk of just going out and saying, “This is starting to look unpleasant, starting to look vulnerable,” the risk of going and selling everything is that support somehow holds in the market rallies and then I’m left out. I’m out of my market, out of my stocks at the lows in the market rallies.

This has been a real market where whipsaw has happened, so whipsaws when you get breakouts and you get in and then the market falls back and you get stopped out or you go short, and then the market rallies again. So, trying to hold the line in one direction is one of the strategies of trying to avoid whipsaw, which is expensive. There’s brokerage, there’s just losses both ways, upside and downside. But if support gives way, it’s clear-cut, you get out.

So, for me, rule one is protect capital. Rule two is don’t sell profitable stocks without a good reason. So, that’s why I’m not exiting everything. I’ve got stocks which are in the money which are doing well. So, I think sometimes holding your nerve. It won’t always be right, but if you blink every time there’s a market scare, well, it makes a stock market an even harder place to make money than it currently is.

So, let’s leave it there for this week. It’s a really vulnerable time. Let’s see how it plays out. Let’s come back next week and see how things are set up then. So, thank you for joining me. I hope you enjoyed it. I look forward to talking to you next week. Till then, bye for now.

Please see video for more detailed analysis and charts

Looking for the best ASX stocks to buy now?

Motion Trader‘s algorithms scan more than 2,000 ASX stocks daily in search of medium term investment trends. We then tell our members precisely when to buy shares. And most importantly, we tell them when to sell.

Try a no obligation FREE 14-day trial of Motion Trader, and see what an algorithmic trading approach could do for you.

Meet Jason

I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney. 
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.