Is it Time to Give Up on the S&P 500?

The S&P 500 lost 0.8% Thursday, adding more pain to this week’s retreat from 4k resistance. Thursday’s losses left the index a hair under 3,900, a level that provided support in late November and early December.

While it is hard to find good things to say about a three-day losing streak, the index appeared to find support at 3,900 after an early violation and bounced back above this key support level in afternoon trade.

The problem is a big chunk of those afternoon claw-backs disappeared by the close, and the index finished in the lower third of the daily range.

As I wrote Wednesday evening, I was out of the market and looking to buy the next bounce. I bought a partial position Thursday afternoon and was prepared to add more if the index closed near the intraday highs. Unfortunately, the late selloff didn’t allow me to do that.

I still hold my initial partial position with a stop under Thursday’s intraday lows. I will add to that position if the bounce resumes Friday morning, but I will pull the plug if the index falls under my stops.

This is a straightforward setup for me, with limited risk if the selloff continues and a pile of profit opportunities if the market bounces.

As for what I think is coming next, headlines haven’t changed meaningfully, and this retreat looks like little more than a routine pullback from overhead resistance.

While down is down, routine reactions to technical levels rarely lead to big changes in the market’s direction. Think of these as the normal step back that follows every two steps forward.

It would take a significant and unexpected headline to send the index back to last year’s lows. And at this point, I don’t see anything that says current conditions are worse than the “less bad than feared” that allowed us to bounce off the October lows.

Now, a big and unexpected surprise could pop up at any time, but savvy traders trade what is happening, not what could happen.

And right now, nothing has changed, which means this is likely just another routine, buyable dip on our way higher. At least, that’s how I’m approaching it until proven otherwise.