Recent stock-market gyrations have carried major indexes near closely watched technical levels, exacerbating swings in both directions as investors weigh the latest updates on trade policy. Technical levels are recent averages and other notable milestones watched by investors to gauge the market’s next direction. Indexes falling below critical levels can prompt selling by market technicians, who use trend lines to trace an asset’s recent performance, while indexes staying above such levels or eclipsing them after dips can spur further buying. After stocks breached key averages, helping power their rally in the first four months of the year, some analysts are wary that a reversal will lead to punishing drops reminiscent of the losses that nearly ended the S&P 500’s 10-year bull-market run last December. In an example of the mixed picture facing analysts following a sudden uptick in volatility, the S&P 500 closed below its 50-day moving average on Monday for the first time since mid-January. The broad equity gauge during the day had dropped back near 2800—a psychological level that has limited its drops in recent sessions—before rebounding in afternoon trading. The S&P also stayed above its longer-term 200-day moving average, a positive development that helped set the stage for Tuesday’s recovery, analysts said. And with Tuesday’s rally, the Dow industrials bounced back above their own 200-day moving average after dipping below it a day earlier. The swings have coincided with changing bets on the U.S. and China reaching a trade agreement. After stocks tumbled Monday as Beijing released plans to increase levies on $60 billion in U.S. imports, they rebounded Tuesday following comments from President Trump that the two sides will reach a deal “when the time is right.” Some investors are bracing for more swings ahead, predicting other protectionist policies that could continue shifting projections for economic and profit growth ahead of the 2020 presidential election. “It is possible we will still see trade volatility and trade tensions all the way up until the election because it is a strong political position,” said David Kelly, chief global strategist at J.P. Morgan Asset Management. In another sign market momentum has held up so far during the recent bout of turbulence, 58% of S&P 500 stocks are still trading above their 200-day moving average, according to Dow Jones Market Data. That’s down from an April peak of 73% but still up from 19% at the end of last year. How have you been reading gauges of market momentum recently? Let the author know your thoughts at amrith.ramkumar@wsj.com. Emailed comments may be edited before publication in future newsletters, and please make sure to include your name and location. |