- The US 500 cash index jumped decisively higher on Friday
- The index bounced off the October 13, 2022 trendline
- The momentum indicators could be close to supporting a reversal
The US 500 cash index is trading sideways today, a much quieter session amidst the Columbus Day holiday. Market participants have the chance to digest Friday’s performance, when the US 500 index managed to successfully bounce off the long-term October 13, 2022 ascending trendline, and developments elsewhere.
The focus has understandably turned to the momentum indicators for an indication on the next leg in the US 500 cash index. The Average Directional Movement Index (ADX) appears to have peaked, and it is gradually edging lower. Similarly, the RSI has jumped higher, and it is currently trading a tad below its midpoint. More importantly, the stochastic oscillator is preparing to move aggressively above its oversold territory. This could be the signal the bulls have been expecting in order to regain market control.
Should the bulls appear determined to recoup part of their recent losses, they could try to stage a move towards the 4,404-4,418 area set by the 50- and 100-day simple moving averages (SMAs). Higher, they could retest the 4,533-4,550 range that is defined by the 78.6% Fibonacci retracement level and the September 3, 2021 high.
On the flip side, should the bears decide to fight the current upleg, they could try to finally break the 4,270-4,310 area, which is populated by the 61.8% Fibonacci retracement level of the January 4, 2022 – October 12, 2022 downtrend and the October 1, 2021 low. They could then come up against the 200-day SMA at 4,226, which, if broken, will open the door for a more protracted sell-off towards 4,106-4,154 range.
To conclude, the US 500 cash index bulls enjoyed Friday’s rally but for this move to have legs, they will probably need ample support from the momentum indicators.