The S&P 500 (SPX) is currently facing a critical juncture that could determine the future trajectory of the stock market. After a tumultuous 2022, marked by the onset of a bear market and a significant drop from its peak, the SPX has been gradually recovering. However, as it approaches a critical resistance level, investors are left to ponder whether this is the beginning of a new bull market or just a temporary reprieve before the bear market continues.
THE HISTORY SO FAR
In 2022, the S&P 500 experienced a new bear market, with the index plummeting from its January peak of 4822 to a low of 3494 in October 2022. Since then, the market has been on a slow and steady upward trajectory, reaching the 4150-4180 area. This range has now become a significant resistance level for the SPX, raising questions about the market's next move.
THE 50% RETRACEMENT AND ITS SIGNIFICANCE
Interestingly, the current resistance area coincides with the 50% retracement of the entire 2022 downward move. This level is crucial as it has historically acted as a pivotal moment in many previous bear markets, determining whether the market continues its downward spiral or reverses course towards a new bull market.
2023
THE BEARISH PATTERN IN HISTORICAL CONTEXT
A review of previous bear markets reveals a consistent pattern where the 50% retracement level has been a critical turning point. This pattern has emerged in the years 2008, 2001, 1981, 1973, 1969, and 1930, with failure to decisively move above the 50% retracement level often leading to much lower prices.
2008
2001
1981
1973
1969
1930
MAKE OR BREAK MOMENT
The S&P 500 is now at a crossroads. If it can decisively move above the current resistance level and surpass the 4200, and especially the 4300 mark, the odds of a new bull market developing will significantly increase. However, if the index fails to break through the resistance and the 50% retracement level, it could be a warning sign that the bear market will persist.
The coming weeks will be crucial for the S&P 500 as it tests the critical resistance area that has previously determined the fate of several bear markets. Investors must closely monitor the index's performance to gauge whether a new bull market is on the horizon or if the bearish trend will continue. Whatever the outcome, one thing is certain – the S&P 500's trajectory at this pivotal moment will have significant implications for the global financial market.
Your analysis is irrefutable. It would be nice to show some instances were the retracement of 50% was not followed by a further deeper fall (if there are any). I have been in the market long enough to remember some of the retracements and pursuant falls. In my opinion, we are now in a period of stronger support and more hesitancy which may bode will for the near future.