Upcoming Key Events Note the last week of January. It's full of market moving events so buckle up. Apologies for the fact that I don't have enough time to prepare charts for you. But stocks are entering a pivot period and I want to alert you to this fact. From the technical signal perspective, the indicators are looking mightily bearish. None of these patterns discussed below is new. What is intriguing is that they have been persistent in their messages, and they are getting louder. So we really should pay attention to this information. Bearish technical setup: Volatility is setting to rise VVIX weekly chart: its 20-week EMA blue line is coiling sideway above its 200 EMA green line. This is the dreaded CTC (Coiling Towards Catastrophe) pattern that I have shared with you before. It will take some time for volatility patterns to fully form.
Bearish technical setup: Market breadth continues to get worse Nasdaq percent of stocks above 200-day MA is dropping steadily. On $NDXA200R (Stockcharts.com) weekly chart, its 20-week EMA blue line has dropped below its 200 EMA green line. As I have discussed before, this is a very bearish setup for Nasdaq stocks. S&P stocks ($SPXA200R) weekly chart shows it following in Nasdaq's footsteps down also. Keep in mind though that the bearish divergence between breadth and price can last for quite a while before its bearish impact will be felt. Bearish technical setup: End of 4th Bull Cycle The bull trend started in late 2022 for NQ. Chart data tells us that we've been through the following bull cycles. 12/27/22: NQ Weekly Chart Bull Trend started. 12/27/22 -7/19/23: 1st Bull Cycle within Bull Trend. 10/27/23 - 3/4/24: 2nd Bull Cycle within Bull Trend. 4/22/24 - 7/1/24: 3rd Bull Cycle within bull Trend. 8/5/24 - 12/18/24: 4th Bull Cycle within Bull Trend. Stock cycles typically peak between 4th and 5th bull cycle in the bull trend. NQ is now in that transition period. It is very likely to retest December high of 22449, and may even go all the way to 23000. This is somewhat similar to NQ topping pattern in late 2021. Under the hood, know that the bears are waking up. What can launch the bear market? The Carry Trade Unwind and FOMC The bearish setups above together form a pile of dry wood, waiting for a spark to start the fire. The spark in this case may come from the Bank of Japan and FOMC. BOJ raised their rate in early August 2024. This launched phase 1 of the Carry Trade Unwind, and the resulting sell-off was painful as volatility surged super high. If BOJ raises rate again this Friday January 24, the unwind can start up all over again. The Fed may also end up adding fuel to the fire based on their actions on January 29. However, macro factors are complex and this is just one simplified explanation of what might happen with BOJ rate raise and FOMC rate announcement. Several MAG7 stocks are reporting Wednesday and Thursday next week, and PCE is next Friday. So be nimble and prepared for a possible rollercoaster ride. How can there be a bear market when stocks are rallying like this? As I write this, NQ ES RTY are marching up steadily, while VIX VX UVXY are dropping. So at first glance, it's hard to contemplate a bear market emerging. But allow for this possibility in your trade and investment strategy. Trade bull positions for short term profit, and be nimble and ready to pivot if necessary. 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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