The financial markets have experienced an extremely strong bounce from the March lows, but based on charts discussed below, it appears as though it could be too early for the bulls to celebrate. Key indicators such as the relative strength index (RSI) did fall to oversold levels below 30, which suggested and that a bounce was likely.
However, a true continuation of the long-term uptrend is facing some near-term barriers such as key trendlines and 200-day moving averages. The manner in which prices behave near these levels of resistance over the coming days will likely dictate the momentum that will drive the market direction over the weeks ahead.
iShares Edge MSCI Minimum Volatility Global ETF (ACWV)
One of the methods that active traders use to get a sense for the future direction of equities is to look at a globally diversified portfolio of stocks that generally have lower volatility characteristics than the rest of the broad market. By lowering the volatility, traders hope to get a true sense of the macro-level forces affecting economies and overall investments.
As you can see from the chart of the iShares Edge MSCI Minimum Volatility Global ETF (ACWV), the strong move higher over the past couple of weeks has sent the price toward the resistance of its 50-day moving average. The downward sloping 50-day moving average suggests that the bears are in control of the momentum and that prices could struggle to move significantly higher from here over the short run. Followers of technical analysis will also likely turn to the bearish crossover between the 50-day and 200-day moving averages shown by the blue circle as confirmation that prices are gearing up to move lower again.
PepsiCo, Inc. (PEP)
One of the top holdings of the ACWV ETF that is currently capturing the attention of active traders is PepsiCo, Inc. (PEP). Taking a look at the chart below, you'll notice that March's sell-off sharply sent the price below a key long-term trendline. The strong bounce from the low of $101.42 has also led to a retest of the combined resistance of the long-term moving average and dotted trendlines. The proximity to major resistance and the bearish crossover between the 50-day and 200-day moving averages suggest that the momentum is in favor of the bears and that many will likely be looking to protect their short positions by placing stop-loss orders above the $140 level.
Waste Management, Inc. (WM)
Waste Management, Inc. (WM) is another top holding of the ACMV ETF that has recently moved below key long-term support levels and looked to test the newly formed resistance. As you can see from the chart below, the 200-day moving average was able to prop up the price in 2019, but the move below in March has triggered a bearish crossover between the long-term moving averages. The nearby resistance levels suggest that the bears are in control of the momentum and that some bulls may want to wait on the sidelines until the price is able to move back above $112.68.
The Bottom Line
By looking at a portfolio of equities from around the globe that generally reflect relatively low volatility, active traders attempt to get a true sense of macro-level forces. As discussed above, the strong bounce over the past several weeks has been positive for many bulls, but nearby resistance levels suggest that the bears could start to move in again and send prices lower over the weeks ahead.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.