S&P Futures Suffering Technical Damage Amid Pullback

S&P 500 futures are down about -4.4% from the all-time highs of 5,333.50, likely leaving many traders wondering if this is a garden variety pullback after a long rise in price or the start of a bigger move to the downside. The past two trading days have been difficult for the bulls, with the /ES falling about -2.7% since Thursday’s close. Yesterday was especially challenging, with rug-pull price action reversing from about a +0.9% rise in early trading all the way down to a -1.2% finish.

The move downward during the past few weeks has done some technical damage as well. For one thing, price closed below the 21-day Exponential Moving Average, which is now pointing downward, as well as the 50-day Simple Moving Average. These are early warning signs of potential trend change. Meanwhile, the Relative Strength Index (also known as RSI, which measures momentum), generated another bearish signal by crossing below the 50 threshold that separates bullish and bearish price action.

Another potentially concerning development for the trend is the Average Directional Index (commonly referred to as the ADX). This indicator is different from most others in that it measures the strength of the current trend, regardless of whether it’s travelling up or down. The ADX has started to rise from a trough, which suggests the trend is increasing, and it also crossed above the 25 level, which is typically regarded as the point where a trend has strength. Finally, price also closed below the lower Bollinger Band yesterday, which creates boundaries based on two standard deviations from a 20-day Simple Moving Average. This typically is regarded as a sign of further weakness to come.

Price is now near a general area that could be viewed as supportive because it includes both the 63-day EMA, which comes in around 5,090, and the yearly Linear Regression Line near 5,118. The 63-day EMA will be crucial to hold today and would provide another piece of bearish evidence if price were to close below it. If price were to move lower, watch the old lows from Feb. 29 near 5,060 for support. To the upside, the previously mentioned indicators like the 63-day EMA, the 50-day SMA, and the yearly Linear Regression Line are now hurdles price needs to overcome to resume bullish trajectory.

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