Systemic Bearish Sentiment is Spreading
Major Selling Last Week
Equity markets experienced some serious selling last week. S&P Futures fell over 3.5% in 3 days. There was a substantial amount of volume involved in the selling. I should say that the selling is very overheated in the very short term. A small rebound should be expected soon to cool off the meltdown down.
The high relative volume leads me to believe that the selling has some validity and is not just a controlled correction. Are investors anticipating the lag effects of interest rate hikes? Is the Isrealy-Hammas war negatively impacting markets further?
Another narrative that could still be negatively impacting markets is th fact that the US economy was downgraded due to the inability of Congress to reach agreements on it debt obligations.
The infighting within Congress while trying to elect a new speaker of the house could also be contributing to the negative sentiment in markets. Regardless of the cause, the technical picture seems to be getting more bearish with each passing week.
Positive Earnings Results With Negative Market Reactions
I have always said that the market will that when you see a solid earnings report followed by a very negative market reaction, then that will show you the current sentiment within the markets. Recently, we have seen companies release great earnings reports with great guidance. But these companies shares did not receive the same sentiment that the earnings reports were portraying.
Some examples more recently were from CRM, TSM, and some big banks earnings. Investors were not buying up these companies shares after stellar earnings or guidance. This shows you that sentiment is bearish, at least in the short term.
Very Bearish Long-Term Technicals
The technical picture is getting more and more bearish. The price of S&P 500 futures has closed below the 200-day moving average as of last friday.
The 200-day moving average is widely used as the strongest support/resistance level of the technical moving averages. Some investors even consider it the bull/bear market indicator. When the price is above the 200-day moving average, then we are in a bull market. Conversly, when the price is below the 200-day moving averge, then we are in a bear market.
In the chart below, I have highlighted the last lines of defense before I would consider any bear market. I have marked the minor support levels I am watching for a potential rebound. You can see these orange support lines in the chart below. These support levels are derived from previous highs in price where these levels acted as resistance.
I have also highlighted a major long-term fibonacci level by a green line. If the price does reach this low level, then this is the area where I believe there is the highest probability of a rebound in the short-term picture. I am still on the fence on whether I should be bullish or bearish. This Fib level is my last line of defense before I flip completely bearish.
A potentialy, very bearish technical development is the fact that we could possibly see a double top on the very long-term timeframe. This pattern still has not received confirmation, but this would be a very scary picture to a technical trader and a long-term investor alike if it were to get confirmation.
Another interesting development in the technical picture is how the price is currently resting just above this very long-term support level, you can see in the chart below. Dipping below this support would add slightly more bearishness to the technical structure.
Changing Vectors?
Currently, the price of S&P 500 futures is near the support of the original price channel, as you can see in the chart below. Technically speaking, this is still the price channel to follow. But the price action needs to be a rebound in the very near future in order for this original channel to remain valid.
If there is a very substantial rebound in the very near future, then this would lead to bullish divergence in the RSI and MACD indicators. This would be a very bullish development. But that has not happened yet.
Any lower move in price will break this channel, and then we will have a new trend forming. Below, you can see a couple of examples of the possible new trends that are forming. You can see a potential wedge and price channel that are forming.
The most important point to take from these two examples is that the original trend is pointing downward, and the potential new trends are pointing down. This is a bearish technical structure. Of course, this picture could change in just a few days of trading. But right now, it seems like there is more probability for more downside in the near future.
I am starting to feel more and more bearish as the days go by. Basically, I will be looking for short setups in the near term until I get some signals of bullishness. It would be ideal to see a bullish engulfing candle near a resistance level ,or at least some sort of bottoming pattern to start off the bullish sentiment. Until I see something along these lines, I will be cautious to go long at the moment. If we see an engulfing candle like this very soon, then it would appear that the selloff last week might be a bear trap.
Conclusion
So far, I have remained bullish the past couple of months. I was under the assumption that the S&P would make new 52-week highs before the years end. I am starting to doubt that belief after seeing the markets performance since the start of Sepember. If there is no legitimate bounce in price very soon, then I will more than likely start looking for short setups based on the technical structure of the S&P 500.
So, how do you think the S$&P 500 will finish the week?
As always, I am not a financial professional, and this is not investment advice. Be careful and be patient. Dont anticipate the market. Rather, participate in the market. Give your investments time. Don't be greedy. Don't invest in anything you don't understand. Don't put all of your eggs in one basket. Don't listen to the hype. Don't fomo or panic into or out of trades. Do your own due diligence. And just follow the trends. A trend is your friend. Good luck trading.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Asphen : bounce due, before further mayhem
SpyderCallOP Asphen: a bounce is definitely overdue
Asphen SpyderCallOP: bounce height depends on the catalysts of major continues earnings and also PCE later this week!
SpyderCallOP Asphen: Earnings should be the driver. But it seems like the Fed has controlled the market all year. So PCE will be important
MonkeyGee : expectional analysis!
SpyderCallOP MonkeyGee: thank you sir
There were a few points I left out. The post was getting a bit long
LightWhat : Please review back your post after end of the week.
SpyderCallOP LightWhat: Right.
SpyderCallOP LightWhat: So far, the market is moving as I expected. My short position looked terrible at the beginning of the week. It looks much better now.
Remind me to review the post at the end of the week. I might forget.