E Upcoming Headwinds For The U.S. Stock Market

The U.S. stock market is running up against a few major headwinds. These headwinds will likely cause the S&P to fall below 2000 again in the short term. Here are the 3 headwinds.

The 200 daily moving average

There is a common pattern among all big U.S. stock market corrections. When the U.S. stock market’s bottom is in, it almost always makes a big retracement after the S&P 500 rallies to its 200 daily moving average.

This is typically the first pause in the emerging rally. Since first pauses are usually the biggest pullbacks, this retracement can usually fall to the 61.8% – 76.4% fibonacci retracement level.

The following charts illustrate that big 61.8% retracements usually occur when the S&P first rallies to the 200 daily moving average.

This chart shows the big correction of 2010. The S&P retraced almost 76.4% after it rallied to the 200 daily moving average. Notice how the S&P overshot the 200 sma for a few days before falling below that moving average.

2010 200sma resistance


This chart shows the big correction of 2011. The S&P surged past the 200 sma for 1 day and then instantly reversed down. It retraced exactly 61.8%. The interesting thing here is that the S&P actually pulled back from the 200 sma resistance twice instead of just once.

2011 200sma resistance


This chart demonstrates the big correction of 1990. The S&P almost reached the 200 sma – it fell shy by just 1 point. Then it retraced exactly 61.8% before rallying to new highs.

1990 200sma resistance


As you can see, the S&P sometimes overshoots or undershoots the 200 daily moving average before retracing 61.8%. That’s why many traders believe that the S&P will rally to 2070 (10 points above the current 200 sma) before retracing 61.8%.

Today’s price action is actually very bearish for the short term. After consolidating in the 2020-2035 range, the S&P gapped up today and almost reached the 200 daily moving average, which is at 2060 right now. This is a very common pattern that occurs before the S&P is about to retrace 61.8%. Should the S&P reverse down tomorrow, today’s daily bar will look like a reversal “hammer pattern” (candlestick pattern).

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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