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Asset Watch
Monday, February 24, 2025
Like flipping a switch, investors went from extremely optimistic to extremely pessimistic, and U.S. stocks sold off on Feb. 21. And with the S&P 500 underperforming indices in Europe and Asia, some analysts believe a meaningful correction could be approaching.
As a result, what levels should you monitor to manage risk amid the uncertainty?
With bearish catalysts lining up for the S&P 500, the laundry list has become quite extensive. Whether it’s rising inflation, a hawkish Fed, tariff uncertainty, faltering economic growth, shrinking fiscal spending, or somewhat weak earnings, the number of S&P 500 downside risks has increased.
Moreover, with bearish seasonality adding fuel to the fire, the turbulence could continue until seasonality flips bullish in March. Consequently, risk management should be a priority until the outlook becomes clearer.
Because the daily price action often produces unnecessary drama, focusing on the weekly chart could be a better way to drown out the noise. For example, the S&P 500 has weekly support near 5,810 (the horizontal white line), and the area has marked the low four times over the last 10 weeks.
Therefore, you should keep an eye on that zone if more downside ensues this week.
The S&P 500’s 20 and 30-week moving averages (the blue and yellow lines) are both rising and often act as support during bull markets. The 20-week MA is near 5,960, while the 30-week MA is near 5,830.
Thus, if the Feb. 21 sell-off was an isolated incident, the 20-week MA should remain a bullish anchor. If not, the combination of price and 30-week MA support in the 5,810 to 5,830 range could be a solid area to increase exposure.
A prudent approach is to remain long above the 20-week MA and place a stop-loss order slightly below to exit if the correction intensifies. Or, if you expect a deeper sell-off, wait until the S&P 500 approaches 5,810 to 5,830 before buying back in.
Both are solid strategies depending on your risk tolerance and how aggressively you trade.
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