We don't usually post technical analysis using the long-term monthly chart of the S&P 500, but the global research team over at Bank of America Merrill Lynch made a compelling argument using just that chart on Monday. BofAML pointed out some key developments surrounding the market's current risk environment from a technical perspective.
As shown on the S&P 500 monthly chart below, the price of SPX as of Monday is sitting just barely above its rising 12-month moving average. The fact that price is above that moving average at all is a good thing – it provides some technical basis that the overall market on a long-term basis is still in a bullish, or rising, trend. The bad news is that price has dropped down to converge with that moving average, something it hasn't done since the market turbulence of 2015-2016.
Similarly, the monthly MACD indicator is still showing a bullish signal, as the MACD itself remains above its signal line, keeping the MACD histogram slightly positive. As with the moving average, the monthly MACD for SPX was flashing sell signals during much of the volatility seen in 2015-2016. The problem now, though, is that the MACD looks dangerously close to converging and potentially going negative.
So what does this all this mean? From a technical view, the market's still in an uptrend, but only barely so. BofAML warns that any monthly price close for the SPX below its 12-month moving average, combined with any new MACD sell signal, would increase the risk that the market's long-term uptrend could sputter like it did in 2015-2016, or worse, reverse into a full-fledged bear market. Though technical indicators are far from infallible, it might be a good idea to heed potential risk signals like these, especially when market uncertainty rises as it recently has.