There was a lot of technical damage done to the stock market this week. So, despite yesterday’s bullish reversal – where the S&P 500 went from minus 50 to plus 20 – the future still looks bearish to me.
Take a look at this 60-minute chart of the S&P 500…
The S&P 500 broke down from a consolidating triangle pattern on Tuesday (the blue arrow). And the index immediately headed lower.
Since the distance between the bottom of the triangle (2750) and the top of the triangle (2950) measures 200 points, the downside target is 200 points below the breakdown level. So, this pattern projects an ultimate move to about 2660 or so.
The S&P got as low as 2766 yesterday.
At that point, all of the technical indicators were in oversold territory. The market bounced. And, the indicators have now rallied back to “neutral.”
But, the selling isn’t over.
The market might run back up to test the former support line of the triangle – which is now resistance. So, maybe the S&P can pop back up to 2880 or so. But, once this bounce ends… we’re headed lower again. There’s much more work to do on the downside.
At the lower point of the day yesterday, none of the technical indicators showed signs of positive divergence.
In other words, as the market was pressing lower, the technical indicators were pressing lower right along with it. That’s an indication that the downward momentum is strong. And, it’s likely to continue. So, any rally attempt will likely fail, and the market will eventually make a lower low.
Traders should look to use any continued strength today as a chance to add exposure on the short side and to profit when the market dips lower again.
Then… if the S&P 500 does indeed fall and dip below yesterday’s low (2766), traders should watch the technical indicators for signs of positive divergence. If the S&P 500 makes a lower low and the indicators remain above yesterday’s lows, then we’ll have positive divergence.
That’ll be a sign that this current downtrend is nearing an end. And the market is gearing up for a more significant bounce.
For now, though, it looks to me like the market has more work to do on the downside.
Best regards and good trading,
In today’s mailbag, Steven and Rick share how Jeff’s guidance helped them profit…
Thank you for all you do! I’m in the industry myself as an equity trader, but
I’ve learned so much from you! For example, from your Market Minute, I loved the VIX setup you mentioned with the Bollinger Bands. I used that to purchase puts on a couple of trades and am sitting pretty! Thank you!
Jeff, I made a 118% gain on a trade recommendation in 39 days. Thank you. No one is 100% accurate, but I take your guidance and make my buy/sell decisions, as I alone am responsible for correctly interpreting your guidance.
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Here, Joanie and Patrick compliment Jeff on his approach to trading…
Jeff has a history of brilliant insight as a money manager, trader, and teacher. All his services are credible! There are a lot of gurus out there, but no one as rounded out, smart, or humble to coach and create a great income for the average person.
Your columns offer a lesson on life as much as a lesson on investing. I look forward to your technical analysis and lessons, but I like the “here’s the truth if you can handle it” guidance just as much.
I wonder how you survive/thrive in California – the antithesis of so much of what you write. Anyway, keep it coming. Your peeps are rootin’ for you!
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