What Happened to the Recession Fears?

Last Friday saw some major bullishness in the major indices. This came after some very worrying premarket price action. A huge gap down in premarket trading immediately followed the release of US employment and wage data. The S&P 500 initially fell over 1%. Things were looking very bearish.

During intraday trading, the S&P finished over 1% in the green, completely reversing the very bearish move in the premarket. Any traders who went short that day based on the premarket move were likely squeezed out during the intraday session, adding to the very bullish day.

The economic data that was released reinforced the idea that the Fed could hold rates higher for longer. This should have been bad news for equities, hence the big gap down in the premarket.

So where did the bullishness come from? Could it simply be a technical bounce after big correction? Perhaps investors are getting comfortable with inflation and are more worried about a recession. The economic data is still showing an economy that is not faultering quite yet. Maybe some of the recession fears have temporarily been put on hold.

Personally, I just think it is a technical bounce so far simply based on the fact that the sell-off is a bit overheated and some buying is necessary to cool off the fire sale.

I have broken down the technical picture for the S&P 500 ETF in the two charts you can see below. The chart on the left side shows the major trending and horizontal support/resistance levels. The chart on the right contains several of the technical indicators I follow when analyzing charts.

On the left, you can see how the price has been resting above a confluence of several major support levels. If you trade the imaginary trend lines like myself, then you would be ready to enter into a swing trade depending on whether the price action rebounds above or breaks down below this major inflection point.

Also, notice that the RSI value on the weekly candles is still above the 50 value. This indicates that the weekly trend is still technically bullish.

The chart on the right illustrates several indications that the downtrend is weakening and/or the price might be in a good area to enter into a long position for a short-term swing trade.

The price is near the 200-day moving average. This moving average is sometimes considered the holy grail of support/resistance levels. If next week goes green then it might confirm a bounce off of this 200-day moving average.

I also highlighted the bullish cross of the KDJ indicator. This is a bullish notion. If the K line in the KDJ indicator can climb above the 50 value then this would indicate very short term bullishness.

The price action is rebounding off of the lower bollinger band and has climbed above the Parabolic SAR indicator, while a 9 has been recently printed on the TDS indicator. All three of these variables indicate that the downtrend is weakening and/or is possibly overdone.

I have also highlighted a gap up in price that was created at the beginning of June. I use gaps in price as support/resistance levels. If you include premarket data, then this gap was completely filled last week, followed by a strong rebound. That is a bullish development.

I wanted to point out how the near-term trend is potentially about to change. The price action of S&P 500 futures has climbed out of the downtrend as you can see in the chart below with the 4 hour candles. Wether or not the price will begin an uptrend, Im not exactly sure yet. If I see the price climb higher than the previous highs I highlighted on the chart, around the 4373.50 price point, then an uptrend will likely be confirmed at that point in time.

If there is a small rejection at that price point, then I will be watching for a potential reverse head and shoulders to form before a possible continuation of the uptrend. If the never reaches4373.50 or a reverse head and shoulders pattern does not recieve confirmation then I will be assuming the bullishness will be on hold for a bit.

Personally, I think this is a technical bounce off of support of the short-term trend and the long-term trend. The market is overdue for at least a short-term rebound.

I also believe that the market has not reached its top yet. Whether that top is this year or next year, I'm not sure. But I do think there will be new highs eventually before the next major correction. So I think there is much more upside in the future, but I am not going to go against this short-term downtrend until there is a clear uptrend forming.

With that being said, there is a lot of bearish sentiment and uncertainty right now in the markets. So I will not blindly jump into long trades. I will follow the trends in the short-term to make money in either direction. But I will keep my long bias so I can be prepared for any substantial rebound when I believe it is about to happen. If there is a substantial rebound, then it will probably happen when most investors are not expecting it.

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.