There’s been an interesting twist in the stock market over the past few weeks when it comes to the S&P 500 (SPX). After the index had posted a series of strong gains, investors have started to see signs of a countertrend rally developing.
So what is a countertrend rally? It’s when an asset class that has recently been trending in one direction reverses, or at least pauses, that trend and moves in the opposite direction for a brief period. In this case, the S&P 500 had seen a bullish run since near the end of December, and the recent pullback could be seen as the market catching its breath before resuming the rally.
But should investors expect this countertrend rally to continue or is it only a brief respite before the underlying trend resumes? To answer this, we’ll take a look at what the charts are currently suggesting.
The first thing to note on the daily chart for the S&P 500 is the 20-day moving average has acted as a support level for the index since late January. As long as the index remains above that key level, it suggests the bulls remain in control and that the underlying trend is still bullish.
As for short-term trends, the Relative Strength Index (RSI) has been bouncing between 40-50 over the past month or so, suggesting a sideways market is in play. That alone could be seen as a bullish sign, as it potentially means the pullback has reached a natural level and a retracement higher is possible.
But, as always, it’s vital to make sure the trading range doesn’t break out to the downside. Should that happen, it would likely point to further downside in the immediate future.
Taking all of this into account, it appears that the countertrend rally is still in effect for the S&P 500 as of now. Although it’s important to keep track of the index’s performance and any potential breakouts that could develop, it seems that the bulls are still in control and a retracement higher could be in the cards.
Investors should keep an eye on the 20-day moving average and the RSI over the coming days to get a better picture of what the charts are implying about the S&P 500’s trajectory.