Two weeks ago, on May 17th, in the Weekly Compass I anticipated a visit to the 40 weekly average as follows:
A pullback at the current levels is normal considering the recent rally and a potential reset of technical indicators on the daily, using the central level to manage risk for longs is good since a visit to the 40 weekly average is possible and it could be painful for long positions recently opened. If that happens, remember that the 40 weekly average was retested in June 2020 as part of the V shaped recovery from the COVID crash, and also in March 2019 as part of a V shaped recovery from the Tariff war 1.0. Those revisits to the 40MA brought -4.8% and -2.2% pullbacks respectively for the SPX; and they happened after a MACD bullish cross.
To read the complete publication, click here.
I'm mentioning that because the technical pattern repeated exactly as expected, even the decline after a bullish MACD signal. The only particularity this time was a gap below the moving average, which created a distraction by suggesting a potential gap fill before the bounce.
When there's an unexpected move, I don't fight the chart; I study more. So, I analyzed the S&P chart over the last 20 years to learn more about gaps and avoid any similar distractions in the future, the results are below for the SPX: