Updates 10:30 PM ET - Sunday Upcoming key events Thursday and Friday this week are major market moving days.  Summary: big-picture is very bearish but a short-term bounce is possible Stocks continue to be in a very bearish trend in the big picture context, from both fundamental and technical perspective. But market may not gap down on Monday, and instead may spend the first half of this week building a short-term bottom ahead of GDP Thursday. Fundamentals are very bearish
Volatility: $VIX has taken off $VIX weekly chart below shows its 20-week EMA blue line starting to head up this past week, after going sideway for multiple weeks. This is significant as it's the type of pattern that can persist, rising higher and higher. We may see $VIX rise as high as 38 by early October.  Market breadth is bearish but may be approaching short-term bottom Below is the daily chart for NYSE Advance-Decline Net Issues. Its 20-day EMA line is in bold blue, and you can see how it's looking mightily bleak, dropping sharply since mid September. However, observe the pattern formed by this same 20-day EMA blue line back in March 2020. The current 20-day EMA blue line suggests that we may be approaching the start of a bottoming process, which supports the possibility of a short-term bounce.  Additionally, here are the percentages of stocks above their 200-day MA:
Clues that will foretell the next market move For the early part of this week, there are three scenarios to anticipate. Scenario 1: Market has an immediate crash that takes ES NQ RTY sharply below 6/16 lows. The clue to look for here is heavy and steady selling from Asia and Europe during the late Sunday into early Monday (Eastern Time zone). Scenario 2: ES NQ RTY take a little pause and then resume the selling, dropping to below 6/16 lows. The clue to look for here is ES NQ RTY rising from Friday's low (S1) to tag 1st resistance level (R1), and then drop, and keep dropping past 6/16 lows. Scenario 3: ES NQ RTY start to form short-term bottom for a minor to moderate bounce. The clue to look for here is ES NQ RTY rising from Friday's low (S1) to tag 1st resistance level (R1), and then drop, and find support to bounce at 6/16 lows. Note that in order for the bullish scenario 3 to take place, ES NQ RTY have to form bottoming patterns like these shown below. The pattern can be seen most clearly with the 20 EMA blue lines on the 2-hour charts.  Key S/R levels  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
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Updates 6:15 PM ET - Monday Upcoming key events Powell's speech on Thursday no doubt will move the market. But a major market pivot is more likely to show up around the quarterly OpEx (9/16), and FOMC plus VIXEx on the same day (9/21).  The big picture: bearish Both stock and bond markets seemed to have gotten the very hawkish message from Powell on 8/26 at Jackson Hole: We are serious about fighting inflation and don't try to second guess us. Getting credit and leverage will not be cheap anymore. This means reduced economic activities which leads to reduced corporate earnings. It is increasingly likely that stock valuation needs to come down to the point where S&P P/E is much lower. The numbers suggested by various analysts are all over the map: $SPX 3600, 3200, 3000. The famous Michael Burry ("The Big Short") has sold all of his stocks based on his anticipation of $SPX bottoming at 1900 over the next few years. The truth is no one knows, because no one has the crystal ball that will see all the future events that will affect the economy. There is no doubt the bears are back in charge for now. The current trend is down. The big-picture signal is bearish. However, in the short term, technical conditions are still set up for a bounce. Market breadth supports short-term bounce NYSE and Nasdaq market breadth charts have been very negative since mid August. But as Nasdaq A/D chart below shows, the bottom is rising. In other words, the negative number is getting less negative. This suggests a bounce is likely to come. Note that NYSE and Nasdaq percentages of stocks above their 200-day MA are now back at 25% and 21% respectively. They have dropped a lot since 8/16 (from close to 50%). And they can still drop more. They potentially can spend multiple weeks below 5%. So breadth data is not suggesting that the bear market is done. It is simply saying maybe a bounce is coming this week due to oversold condition.  $VIX supports short-term bounce $VIX 2-hour chart below shows that $VIX spent 3 days last week forming a top. Then it formed a lower high pattern on Friday. This pattern suggests that volatility is likely to drop some more before it resumes rising. We may see $VIX retests the zone between 21.7 and 23.2 again.  Key short-term price levels ES 4-hour chart below shows the range 3905 - 4020 as a key support zone back in May and July. ES is likely to bounce inside this zone this week. It may even clear 4020 and rises up to 4070. That level 4070 is pretty strong resistance. It's ES 20-week EMA, and where its 20 and 50-day EMA lines are converging. So ES is unlikely to rise above it.   Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 10:30 PM ET - Sunday Upcoming key events  The big picture: bearish The big rally from 6/16 to 8/19 seemed to have been built on two premises: inflation has peaked, and the Fed will soon pivot to dovish. Powell's speech on Friday put to rest that false assumption. It is interesting to read the following WSJ article, which offers an opinion on why the Fed's tough talk may be temporary. However are some additional data points to keep in mind.
July PCE may have shown price softening a bit, but looking at the latest charts for key items from above, we think that inflation is likely to rise a bit more again. Hard to keep price down when copper and corn are rising, and oil may soon join the party. Market breadth is dropping sharply >> bearish
Rising volatility >> bearish In $VIX 30-minute chart below, $VIX 200 EMA green line is rising sharply. This turns our big-picture signal to bearish. $VIX is certainly capable of reaching 31-32 at this point. In fact, it may go as high as 35 before the big-picture signal turns bullish again.  How low will price go? $SPX has formed a very bearish shooting star candle on its monthly chart for August as shown below. Nasdaq and small-cap charts show the same pattern. Market is now in a bearish regime. So how low can price go? We think there is a good chance that $SPX and the rest of the indices will retest the lows of mid-June in September, or at the latest in October. Where price goes after that depends on the success of this critical retest.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 12:30 AM ET - Monday 8/22/22 Upcoming key events  The big picture: transition to bearish is possible, but not guaranteed There are different "wind conditions" pushing on equity market right now. Bullish tailwind:
Bearish headwind:
It is very difficult to trade stocks based on macro conditions. However, it is important to monitor the strength of the US dollar. USDJPY and USDEUR have been climbing up at a sharp rate since 8/11. This is a strong bearish warning for stocks. Note also that Powell is scheduled to speak this Friday. This will be treated almost like FOMC rate announcement since the real FOMC is not until 9/21. Market breadth is dropping sharply >> bearish
Volatility: $VIX is basing to rise short term Market is entering a tricky period here. It could be undergoing a big dip to ease up the overbought condition, brings on more buyers and resumes the bullish trend with renewed vigor. Or this could be the setup to launch a new bearish trend. There is no easy way to tell. But we have found in the past that $VIX does send out some reliable signals to look for in this kind of condition. On Friday, we discussed how it's time to closely monitor $VIX various 200 EMA lines. Another way to monitor it is to look for the small W and big W patterns as described below. Right now, $VIX is in the process of forming a small W similar to the one formed between 3/19 and 4/5. $VIX needs to tag the zone between 19.2 - 19.5 quickly and then turn up. That will complete the small W pattern. This process is turning the short-term signal bearish. From the small W pattern, $VIX is likely to rise up to about 22 - 23. If $VIX drops from there to retest the zone of 19 - 20 one more time and surges out of there, then it is forming a big W similar to 4/21. Volatility will really surge and the big-picture signal will turn bearish.  There is no way to determine ahead of time if $VIX will form the big W pattern or not. It may just drop from the 22-23 zone and keep dropping past 19. Therefore we must remain unbiased and let $VIX chart tells us where it is going.
Key levels After $VIX finishes forming the small W, it is likely to spike up to 22-23, and price is likely to drop to these levels to look for support:
Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 12:45 AM ET - Monday 8/1/22 Upcoming key events This is week is all about jobs.  Earnings this week Chart courtesy of Earnings Whispers.  The big picture: still gloomy fundamentals
The only source of strength in the current economy is the labor market. The job report this week will give us a better idea of where jobs are heading. ...but squeeze, baby! As we explained on Friday, despite a very gloomy economy, the market is turning bullish basically on the bond market betting that the Fed will cut rates in the 2nd half of 2023. And because of the dominance role of equity hedging via the options market (puts), any hint of bullishness in price actions can quickly trigger a short squeeze due to short covering by traders and massive short covering by dealers. It's very difficult to trade this market if your trade criteria are driven by fundamentals. Bears betting against the current price actions may get squeezed hard. But bulls also need to be careful. The rate cuts in 2023 may just turned out to be a bond market fantasy. And any hints of this not happening will trigger a massive sell-off, in both bonds and equities. Bear market rally that might become bull market If we focus on actual price actions, the charts right now are saying "bullish, bullish, bullish!" Take a look at ES 4-hour chart below. We want to suggest to you that it is entirely possible that a new bull market has started on 7/19/22. This is when the 20 EMA blue line rose above 200 EMA green line. More importantly the 200 EMA green line also flattened out and started to rise. So while traders may be foolishly bullish right now, we don't want to argue with a rising 200 EMA line on a higher time frame like a 4-hour chart. We just want to ride it up.  Market breadth confirms bullishness   Volatility confirms bullishness While ES NQ RTY 200 EMA green lines (4-hour charts) are rising, $VIX $VVIX 200 EMA green lines are dropping. In fact, they've been doing this since 5/20, but nobody believed their bullish message.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 1:00 AM ET - Monday 7/25/22 Upcoming key events This is a big week in economic news, but the event with the most power to move the market is FOMC rate announcement on Wednesday.  The big picture: still gloomy fundamentals
So is the bear market rally done? The current bear market rally that started on 6/16 was fueled primarily by three factors:
As we discussed in Friday's post, the short-covering activities that functioned as fuel for the rally since 6/16 has been mostly burned off. The short-term bullish volatility signal is starting to fade. The market is now vulnerable to the effect of economic news since it's not as well hedged yet as it was before 7/15. There are a lot of triggering news this week, along with the big one which is FOMC rate announcement on Wednesday. So we should expect big price swings, potentially both up and down. Speaking of FOMC, the Fed is expected to raise rate by 0.75 percentage point on Wednesday. (They usually float their numbers to the Wall Street Journal.) The market has already priced this in. It is the hints of how much longer does the Fed expect to keep raising rates that will matter more to the market at this point. Market breadth
Taken together, waning breadth is usually a bearish warning. Short-term volatility signal: "Fading Bull" (close to becomimg "Rising Bear") $VVIX 2-hour chart below continues to form a W bottom with its 20 EMA blue line. These W bottoms typically precede a big rise in volatility (red arrows). This is a warning from $VVIX that the bullish force is fading.  To be clear though, $VIX itself has not risen up enough yet. It is still below its 20 EMA blue line in the 4-hour chart below.  What would turn the signal to "Strong Bull" again? If $VVIX quickly spikes up from here to about 103, and $VIX spikes up to about 27, and then they both drop quickly, the setup would recharge the bull again. During the quick $VVIX $VIX spike, prices may retrace to these key levels:
These are potentially bullish setups, and ES may rise from 3800 all the way to 4200 (high 5/30). What would turn the signal to "Rising Bear"? If $VVIX and $VIX spend a few days building a bigger W or multiple W bottom, then conditions will be turning seriously bearish. $VVIX $VIX may rise a lot higher. In that scenario, ES NQ RTY are likely to retest the lows of 6/16.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 10:45 AM ET - Sunday Upcoming key events This week is lighter in economic news.  Important earnings this week:  The big picture: gloomy fundamentals
Short-term volatility signal: "Rising Bull" Yet weirdly enough, stock volatility continues to drop. $VIX weekly chart below shows it has been forming a series of lower high tops for the last 6 weeks. This has been providing bullish tailwind for $SPX. $VIX may drop all the way to its 200-week EMA green line (currently at 21.5) before a much bigger bounce. This means more short-term bullish tailwind for $SPX.  Market breadth: providing bullish tailwind for stocks
Stock indices may be coiling to break out In looking at Nasdaq futures NQ 4-hour chart below, it is now clearer that NQ has been bullish since 6/16 low. And since that low, NQ has been coiling to form a base, as evident in the patterns of its 20 EMA blue line and 50 EMA red line. There is a high probability that this coiling base will result in a breakout, most likely post FOMC next Wednesday 7/27. The breakout may push price back up to the highs of 6/2. This is true for NQ as well as ES and RTY.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 9:22 AM ET - Wednesday 7/6/22 ISM Service Report and FOMC Minutes
Updates 11:30 PM ET - Tuesday Short-term volatility signal: "Transition" When we last posted at 2 PM on Tuesday, stock indices were still not fully revealing their directions yet. But by end of day Tuesday, price actions and chart patterns swung in the bullish direction. So how real is this? $VIX daily chart below shows that it has been forming a lower high pattern relative to the highs of mid-June. Tuesday pattern confirms that volatility continues to ebb. This provides bullish tailwinds for stocks.  SVXY chart also gave us a substantial clue. Observe the sideway 20 and 50 EMA blue and red lines on SVXY 2-hour chart below. The last time SVXY formed this pattern was 5/24, right before it broke out.  Nasdaq is the most bullish index right now (who knew) Nasdaq Advance-Decline net issues are climbing back up. NQ $NDX price actions were much more bullish on Tuesday than S&P or small caps. This happened despite the major sell-off in semiconductor stocks (SOXL). So what can we expect to see from NQ chart? NQ 4-hour chart below shows that it is forming a potential W bottom. As long as NQ stays above the support level of 11350 on Wednesday, it turns the signal to "Fully Bullish". Once NQ starts rising, the first level of resistance is at the 200 EMA green line, around 12007. If NQ can vault over this line, it has a chance to get back up to 12900.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 8:45 PM ET - Sunday Upcoming key events This week brings more economic data to fuel the discussions about inflation, recession and rate raise. Note also that next Monday is 4th of July holiday, and this one will be particularly poignant.  Big picture: Bear market still in pause mode with short-covering rally In the updates for Tuesday 6/21, we wrote that the bear market is not done, but is likely to be getting a respite in the form of a short-covering rally during the week of 6/21. And that is pretty much what happened last week. Big picture: Intermarket indicators show bullish support Intermarket indicators are still supportive of the current rally, as they were last week.  Big picture: Market breadth shows bullish support Market breadth has certainly been improving. The percentage of Nasdaq stocks above the 200-day MA went from a 4% low (week of 6/13) to 18% high (week of 6/20). Similarly, NYSE stocks went from 5% low to 23% high. Also, the weekly chart doji pattern shown below is also bullish.  Short-term volatility signal: "Fully Bullish" $VIX is forming a topping pattern. $VVIX is steadily dropping. Both charts are providing bullish support for stocks.  But we should monitor SVXY closely. It formed an evening star candlestick on its daily chart on Friday 6/24. On 5/17, this pattern lead to a drop in SVXY (bearish for stocks). On 5/26, SVXY ignored this pattern and kept marching upward.  Bear market done? We really don't think so. A lot of puts expired in the last two Fridays, and that accounted for the drive behind the current rally, which started on 6/16. There is end-of-month expiration happening this Thursday 6/30 (for June). There is end-of-week expiration happening this Friday 7/1. As these put options expire, dealers will rebalance their books by covering their stock futures shorts. This is buying into strength, and it fuels very sharp price increase. (See articles explaining this phenomenon here.) While we think it is possible for ES to rise up to 4000 this week, it is likely to run into strong resistance there, and will consolidate for multiple days before breaking out or breaking down. Furthermore, even if the bear market was done, it is extremely unlikely for ES to march straight up (V recovery) without forming a W bottom, or cup-and-saucer pattern near 3639 first.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 12:45 PM ET - Monday Upcoming key events After all the events of last week, market participants were psychologically exhausted going into the long weekend. This coming week is much lighter in economic reports, but Powell is scheduled to speak on Wednesday and Thursday. Some potential fireworks there.  Short-term: Bear market is not done, but it is getting a respite Despite the Fed's latest attempt at soft landing, this bear market is not done yet. But it would appear that there is a bit of a respite happening after the major sell-off right before FOMC last week.
Nasdaq percentage of stocks above 200-day MA dropped as low as 4% last week, before recovering to form a bullish doji on its weekly chart. It closed at 8%, certainly down in the range of capitulation. But the charts are not sending out a clear "capitulated" message just yet. Long term: $SPX to 3000 and then 6000? All of this is very depressing news for most people. But you may cheer at the following projections. One of the most bearish analyst on Wall Street, Michael Hartnett, came out with some interesting predictions for this bear market. Essentially, based on historical data:
Short-term volatility signal: "Transition" Zooming back into the short-term tactical trading perspective, we focus once again on the keeper of the market rhythm: $VVIX, otherwise known as "vol of vol". So far in this bear market, when $VVIX has formed 4 topping spires is when the volatility signal becomes "Approaching Bullish". Then when $VVIX drops below it 200-hour EMA, rises back up and tags this key resistance, volatility signal becomes"Fully Bullish". We don't have that setup with $VVIX yet. $VVIX has only formed 2 spires so far.  But in case we're wrong about this projection, we are also going to track it via SVXY.  Key S/R levels While SVXY forms W bottom, here are the key S/R levels to monitor.
 Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades. |
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