It is options-expiration week so actually something goes, particularly with the Volatility Index ($VIX) remaining so elevated. Within the very near-term, I would not be stunned by a fast upside transfer to channel resistance and even to check the early February excessive. There is a TON of web in-the-money put premium in play as we velocity in the direction of Friday (choices expiration) that might start to vanish on a rally. The draw back is rather more open as I imagine that is the trail of least resistance finally. The S&P 500 has neckline assist at 4300 that must be monitored. Lack of that assist would actually be problematic for the bulls as fewer and fewer giant cap shares are wholesome sufficient to stabilize the index. I might most undoubtedly see a swift decline to 3800, which is nothing greater than the measurement of the present head & shoulders topping sample in place.
This is the short-term channel that I am watching on the S&P 500:
The current worth highs are simply beneath 4600 and the 50-day SMA is precisely at 4600. Ought to the channel be damaged to the upside, there’s that worth resistance and the 50-day SMA converging close to 4600. If the S&P 500 can clear all of that congestion, then a re-evaluation could be so as. Till then, my bias is clearly bearish within the near-term, options-expiration Friday withstanding.
Massive-cap development ($DJUSGL), which has such a heavy presence in and affect on the S&P 500, is the sub-group to look at. I imagine its chart sample is much more bearish than the S&P 500 itself. Take a look at the each day and weekly charts of the DJUSGL:
Every day:
The each day RSI moved under 30 for the primary time prior to now 52 weeks. Sometimes, RSI assist is nearer to 40 throughout an uptrend. Notice additionally that the bounce within the RSI solely made it again to 50 to date. RSIs that hit lows within the 20s and fail to interrupt 60 on highs signify readings throughout cyclical bear markets. The down-sloping shoulders and neckline are also rather more bearish than extra symmetrical head & shoulders patterns – in my opinion. However it does not cease there. We’re seeing weak spot on the weekly charts like we have not seen in lots of months:
Weekly:
Slowing momentum was undoubtedly a problem at 12 months finish and I all the time look to “resets” of the PPO when a damaging divergence prints. This reset, nonetheless, has already crossed the PPO centerline in bearish style. Additionally, as soon as the 20-week EMA assist was damaged, it has served as resistance (pink arrow). Worth motion that traits beneath its 20-day EMA offers a really bearish slant as properly. The black arrow reveals a earlier prime (resistance) that when damaged, offers assist on pullbacks. We have now examined that degree. Whereas I imagine the chances are lower than 50/50, there is definitely nonetheless the prospect that this 5150-5200 assist degree holds. That’s what the bulls NEED to maintain this short-term correction from turning right into a a lot deeper cyclical bear market.
Whether or not we break down or not, I stay VERY BULLISH the longer-term. I imagine we’ll get indicators over the following 1-3 months of a MAJOR backside. If I am right, the chance in development shares over the steadiness of 2022 and into 2023 might be super – much like 2020.
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Tom
Tom Bowley is the Chief Market Strategist of EarningsBeats.com, an organization offering a analysis and academic platform for each funding professionals and particular person traders. Tom writes a complete Every day Market Report (DMR), offering steering to EB.com members day by day that the inventory market is open. Tom has contributed technical experience right here at StockCharts.com since 2006 and has a elementary background in public accounting as properly, mixing a novel ability set to strategy the U.S. inventory market.
