Hi guys. I’ve been away for a month, not because of the markets, but because I was travelling and had a very limited internet access. And as I came back I see that not much has changed. Liquidity is getting sucked out of the markets, strength is being sold into so the markets are going down one by one.
Stocks have so far been hit quite hard, some more than others (see 1, 2 and 3), oil has been killed and don’t me even get started with cryptos (see Expecting a move in Bitcoin).
I would like to see a change though, but until we do we need to be defensive and err on the short side. Let me give you an update about the markets and what to look for going forward.
Let me start with the S&P 500 weekly log chart. After a very sharp correction in the past two months we see that the price is currently at a rising trend line that has started in 2009.
The price holding above last month’s low is crucial for bulls. Break below would also confirm a break down through the rising trend line and create even more damage to the chart which would imply that deeper correction is likely. A 161% extension from 2015 peak to trough correction is at $2340 and that would become the next minimal target.
However if we see prices below last month’s low only briefly (or not at all) followed by a reversal higher on volume, that would create some constructive signs for the bulls.
Let me continue with the weekly log chart of XLK Technology ETF.
The price now is trading below 2000 peak with a strong level of interest at $67. If the price stays below we need to be very cautious. In this case the price could correct by additional 10-15% at least.
Some might interpret this chart as a retest of a recent breakout higher. I’d argue we already got a retest earlier this year and yet another one is less likely to hold. We need to be observing that $67 level very closely!
Another sector that could get very ugly really fast is Regional banks.
Bulls are hoping for level at $50 to hold. Until it does this market stands a chance. But should it lose it, then run for the hills. I hope you don’t need a reminder that Financial sector isn’t looking particularly constructive either (Sectors on the watch to short).
And let me finish with the last FAANG standing so it seems. That is $GOOGL or Alphabet. In the recent correction it was holding better than its peers in the group.
So the question is, is Alphabet really the last man standing or will it lead the group and stocks higher in the months to come?
It broke below a rising trend line on a log chart and created a lot of damage but now is holding above a crucial support at $1000. If the bulls manage to keep it above, then this market stands a chance of seeing a bottom soon. But if not, then do not underestimate the risk presented above!
Whatever happens, don’t get fooled by a minor relief rally that might suck traders in believing it’s all over. If we’re about to see a continuation of the bull market we need to see some serious strength that’s backed by high volume accumulation.