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Richard A. Cox
Richard A. Cox
Articles (55)  | Author's Website |

S&P 500: Deeper Pullbacks Possible

Most investors are not properly positioned for likely retracements

March 09, 2017 | About:

Stock market bulls have been firmly in control over the last several months, but now that the optimism has reached an exhaustion point it is prudent for investors to start looking for appropriate levels to buy and sell positions. There is no doubt that the trend in stocks is to the upside, and this has been well-reflected in the SPDR S&P 500 ETF (SPY) and the SPDR Dow Jones Industrial Average ETF (DIA).

Both ETFs are trading near record highs, but this is after something of a pullback in the last few trading sessions. The real question here is whether these trends will see deeper retracements prior to the next Federal Reserve meeting. If this turns out to be the case, we will likely see rallies in the iPath S&P 500 VIX ST Futures ETN (VXX), an instrument that has been trading at exceedingly low levels for an extended period of time.

Increasing trading volatility can make it difficult for those taking short-term positioning stances. So it is important to have a reliable trading platform if you operate using these types of strategies, and this review of Ameritrade addresses those views for investors. Assets like the SPDR S&P 500 ETF have not seen any major dips since the last few months of 2016. Before then, the market was relatively stable until we moved back to the summer period.

Both of these moves should be viewed as an indication of what is most likely to occur once SPDR S&P 500 investors start to look for areas to take profits while valuations are still trading near their highs. This type of event could come sooner rather than later, given the way markets have behaved over the last few sessions.

Price levels

In terms of stop loss activity, markets are likely to see increases in short-term volatility if we see a break below the 230 mark. This was a double to resistance level when we look at the lower time frame charts so trading activity here could be a big indicator of what is next if long investors are not able to maintain these levels.

Screenshot 2017-03-08 at 8.34.32 PM.png

To the downside, we are more likely to see long traders stepping in on a trend basis rather than on a support level basis as the trend itself has been the best indicator of forward price activity.

This ultimately means that prices will need to fall below the 220 level in order to change the broader outlook. But at the same time, this is like a series of market events that most investors will not be positioned for if it does turn out to be seen in the markets this month.

Disclosure: The author has no position in any asset mentioned.

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About the author:

Richard A. Cox
Richard Cox is a university teacher in international trade and finance. He writes for CNBC, NASDAQ, TheStreet.com and the Motley Fool.

Visit Richard A. Cox's Website


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