Is the Market Going to Crash Again?

Stocks are soaring this morning as bulls look to spur on a snapback recovery. The major indexes, all of which have risen mightily over the last few hours, are escaping from “correction territory” below a key trend indicator:

The 50-day moving average.

Whether they can stay above water, however, is going to be critical in the coming days.

As of noon, the Dow is up 1.30% while the S&P trades 1.60% higher. The Nasdaq Composite is leading the pack with a 2.10% jump in share prices, lifted by an impressive tech performance.

In fact, the tech sector as a whole is up more than 4%. That’s the biggest tech surge since last Wednesday, the day after the market’s sudden correction from its all-time highs.

Several important deals are partially responsible for boosting sentiment this morning. Nvidia just announced that its buying chipmaker Arm Holdings from SoftBank for $40 billion. In response, NVDA shares charged higher. The stock was up as much as 8% at one point.

Oracle (NASDAQ: ORCL) also made waves when investors learned that ByteDance chose the company to be TikTok’s U.S. technology partner. In the agreement, ORCL should receive a sizable stake in the business.

And outside of tech, AstraZeneca (NYSE: AZN) said that it’s going to resume trials for its Covid-19 vaccine. Last week, AZN halted its vaccine candidate study due to safety concerns.

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Now, the major drug manufacturer is back to testing.

Many analysts remain bullish on equities as a result of the recent sell-off and the crop of good news from the market’s leading corporations.

“The excessive technology froth from August has been wiped away, but in its wake, clear and ominous topping patterns [have] developed,” explained Frank Cappelleri, executive director at Instinet, in a note.

Jefferies’ Sean Darby believes investors have plenty of reasons to remain optimistic as well.

“There is nothing untoward about the fundamentals nor earnings expectations,” he said.

“An upside surprise would come from further dollar weakness, while the emergence of a vaccine and/or a rise in long-term rates would curb performance.”

But keeping a lid on things are continued struggles with a Covid-19 relief bill in Washington. Senate Majority Leader Mitch McConnell said on Friday that the chances of reaching a deal don’t “look that good right now.” House Speaker Nancy Pelosi made similar remarks last week.

Still, that doesn’t mean a deal is entirely out of the question. Nor that the market will even care about one moving forward.

Instead, a set of key technical indicators – the 10-day moving average (10-SMA) and 50-day moving average (50-SMA) – could dictate where stocks end up going.

In the daily candlestick chart above, it’s clear that the S&P 500 has traded itself into a tight, choppy range. The index almost closed below the 50-SMA on Friday, which to many traders, would’ve been a “sell signal.”

Conversely, if the S&P 500 continues rising and closes above the 10-SMA, it could be a sign to start buying once more.

Right now, though, there’s far too much indecision for investors to feel confident about making a move. If the indexes break past either the 50-SMA or 10-SMA in a significant manner, it might make sense to take action.

But until that happens, it’s likely wiser to watch and wait. Because the last thing you’d want to do is “buy the dip” before it’s over, especially when the market is trading beneath the 10-SMA, which is widely believed to be an important short-term trend indicator.

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