Bulls versus bears, with support below and resistance above

Bullish or bearish? That seems to be the debate that started between market technicians yesterday.

After all, traders often consult charts for clues on the potential direction of stock prices. Patterns can take shape over weeks and months, or appear in a single session. There are also times -- like right now -- when they point in opposite directions.

Engulfing candles were common recently. That’s when a security makes both a higher high and lower low one day versus its previous session. They’re typically viewed as indicators of a reversal, with the potential to mark either the end of a rally or start of a rebound following a selloff.

Last month, there were more engulfing candles than you can shake a stick at. March 21 was an especially big day, with the pattern surfacing in key benchmarks like the S&P 500, the Dow Jones Industrial Average, the Nasdaq-100 and the CBOE Volatility Index. Stocks took a beating at the time and continued to bleed lower into the following week.

But then another potentially key signal asserted itself: the 50-day moving average. Unlike the engulfing candle (based on just two sessions), the 50-day MA combines almost two months of history into a single level. It’s perhaps the most broadly watched indicator of direction in the entire market.

The S&P 500 bounced at that 50-day moving average, but soon found itself right back up near the top of that March 21 engulfing candle. In other words, there's support below and resistance above… Chart watchers may now expect a real battle between the bulls and the bears.

S&P 500 3-month chart

Source: OptionsHouse by E*TRADE

Both camps have potential arguments on their side. The glass-half-full crowd can point to strong data as consumer and manufacturing reports continue to improve and keep beating expectations.1 Doom-and-gloomers, on the other hand, argue that the bulls are deluding themselves. They see far too much optimism for political reform and tax cuts given the deadlock in Washington. And they’re almost certain economic growth is already running at maximum velocity.2

It’s a good thing we have news events to help settle the debate. Most traders are keenly aware of the Labor Department’s jobs report on Friday, but they should be careful not to get blindsided by 2-3 potentially important catalysts tomorrow. First is ADP’s private-sector payrolls report at 8:15 a.m. ET -- not as important as the government number, but not chopped liver either. Oil inventories at 10:30 a.m. ET may also figure prominently with energy stocks trying to bounce from their lowest levels in almost five months. Minutes from the last Federal Reserve meeting will be released at 2 p.m. ET as well.

After that, attention will turn to earnings season, with analysts predicting the best profit growth in over five years. Major banks and financials report first, but guess what sector is expected to show the strongest gains? Yep, energy.3

In conclusion, the market is always torn between longer-term fundamentals and shorter-term volatility. But seldom has it been so clear as it was on Monday’s chart.

1. CNBC: Consumer confidence soars in March to highest level since December 2000, 3/28/17. Marketwatch: U.S. manufacturing hiring hit 6-year high, ISM finds; 4/3/17.

2. CNBC: Goldman: Expect a delay in tax reform and watch the market fall ... except for these stocks, 3/27/17. Reuters: Wall Street lowers first-quarter GDP view after weak spending data, 3/31/17.

3. Factset: Earnings Insight; 3/24/17