Lots to briefly discuss. Since the ES Futures are up, I'm assuming we'll have at least a small gap up tomorrow. This rally is very much living on borrowed time, so it could capitulate at literally any moment. Have your wiles about you. Be prepared for a selloff at any moment. The market is a tinder box right now.
Several technicals are at play right now. If we push above the high made on the 29th, it will totally discourage the bears and probably trigger a lot of stop losses which could lead to a short squeeze. This would invalidate the head and shoulders, but that is not necessarily a reason to be bullish.
There is a gap in the volume profile just above us (yellow arrow) which means that a move up to the 200 day simple moving average (red arrow) won't be too difficult. That number comes in at SPY 299.77 right now. That moving average might be the key. If you go back to previous bear markets, there was always an initial selloff, then an eventual retest of that 200 day simple moving average before the big drop. In the case of past bear markets that took months, but we might as well get it over with now since we're so close. In fact, that may be just what the market is trying to do. If we touch it now, we won't need to check in with it again for along time (months).
In past recessions, we rallied back to it months after the initial drop, but that was the moment that the bad economic data started coming out and so the big drop happened. In the case of the present day, the bad economic data (especially jobs) has come out fast because we are all laid off so fast, so it makes sense to hit that moving average now. There is also a thin gap made on the 5th & 6th of March up there that we can close.
All of this is about 2% above us and so is within reach. On the other hand, one reason we might drop right away is that we are sitting right under the 61.8% fib, which is serving as resistance. We may just gap over it in the morning, so, perhaps that hurdle will be removed. If we do push higher, don't expect it to go on for more than a couple of days.
Interestingly, this will coincide with the Bitcoin "halvening," in which case it could either soar or collapse. Weird!
Not only is every single dip being bought, the frequency of that buying is staggering. We are a tightly coiled spring here. There is essentially very little resistance between here and the All time highs once we break through the 295-300 zone. Coupled with big cap tech companies turning huge profits in this environment (take the time to read their earnings transcripts, i promise you you'll never want to short anything that has tech exposure in the near future after you do), we also have the nearly $4 trillion that's rushing into the economy from the government and fed. If you are trying to short the tech heavy indexes (sp500 or qqq) you are literally standing in front of a tsunami. Will all this money rushing in have consequences? Yes, inflation etc, but only after it takes the market higher first.
2 things to look out for will signal when the time finally comes to short -
1. The credit markets tighten up. This is the ONLY thing that spooks the market right now. The market stopped caring about coronavirus when the government dumped a bunch of liquidity into the market. Take a look at all the debt that's being issued right now. Everything is oversubscribed. Stay out of the big money's way, it will crush you.
2. Trade tensions with China heat back up. This is unlikely to happen this close to the election but we do technically have room for one more sell-off that would allow for a rally into the home stretch into the election. This would maybe only result in a garden variety correction anyway so you may only get a couple weeks of opportunity.
Other notes:
Health care at an all time high and still going. Its a true winner in any environment now that single payer is off the table.
Also, keep in mind the banks, small caps, and industrials are still severely lagging, meaning there's not much left to short there. Dow names like Caterpillar and Boeing are already at or near their bottoms. The next catalysts are infrastructure bill for Caterpillar, and 737max certification for Boeing. The industrials are your catch up trade although they will need a lot of time to materialize. Your banks and small caps are the last unknowns here. Those will be your make or break on whether we actually can push to new all time highs in the next 12 months.
Monitor the data carefully and apply your technical analysis by looking at the catalysts. All the "bad stuff" that rolls in doesn't bother the market yet. Will it later? Sure, after you have run out of money trying to short it.
azdevil
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So in your chart you are pointing to 3 % higher as a target, so why do you say to short. how do you make any money shorting when the trend has been up since late march.
dereckcoatney
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@azdevil, Well, that's a matter of time frames. We're in a bear market, so I don't generally go long. I believe we are about to drop, so I think shorting the market now, or soon, is the thing to plan for. Of course at the bottom of the market, I wasn't short.
azdevil
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@dereckcoatney, A bear market is defined by a drop of 20% or more for a sustained period of time. i wouldn't say both of these are true at this point in time. so the market was down -20% just from roughly march 26th to April 6th the 2600 level. That's just to short time frame to make that determination in my opinion.
dereckcoatney
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@azdevil, I'm sorry: call it what you will, but the technical definition is arbitrary. We're in a recession; we're not going to trundle around with tens of millions of people unemployed in a bull market. I'm only offering an analysis. Go long if you must.
azdevil
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@dereckcoatney, I agree its a recession but that doesn't mean the economic data could be getting better not worse , however i have learned to trade the chart in front of you , meaning the trend has been up since the march lows, personally i have no luck luck on trying to guess when a trend may change
dereckcoatney
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@azdevil, Perhaps then our differences boil down to investment time frames. I look at it like this: we are in a recession & a bear market, so the "trend," in my view, is necessarily down, and it probably will be for quite some time. We are in a downtrend. Now of course within that downtrend there can be temporary uptrends, but they are actually countertrends. And in a downtrend, the dominant trend is down, so in that sense, by having a bearish bias, I am trading "with" the trend. Now, if one is a short-term trader or even say a day trader, then one can trade accordingly.
stockSMASH
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Study every aspect of monthly chart. market gets sold in June. Hard. Op ex this week will peak the price sentiment..
Always do. Summer a bummer for those who hold
InteractiveSwingTrading
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Mega-report compiles every off limits piece of dirty laundry on Wall Street into one short write-up. Highlights trillion dollar lawsuit. Tons of screenshots
2 things to look out for will signal when the time finally comes to short -
1. The credit markets tighten up. This is the ONLY thing that spooks the market right now. The market stopped caring about coronavirus when the government dumped a bunch of liquidity into the market. Take a look at all the debt that's being issued right now. Everything is oversubscribed. Stay out of the big money's way, it will crush you.
2. Trade tensions with China heat back up. This is unlikely to happen this close to the election but we do technically have room for one more sell-off that would allow for a rally into the home stretch into the election. This would maybe only result in a garden variety correction anyway so you may only get a couple weeks of opportunity.
Other notes:
Health care at an all time high and still going. Its a true winner in any environment now that single payer is off the table.
Also, keep in mind the banks, small caps, and industrials are still severely lagging, meaning there's not much left to short there. Dow names like Caterpillar and Boeing are already at or near their bottoms. The next catalysts are infrastructure bill for Caterpillar, and 737max certification for Boeing. The industrials are your catch up trade although they will need a lot of time to materialize. Your banks and small caps are the last unknowns here. Those will be your make or break on whether we actually can push to new all time highs in the next 12 months.
Monitor the data carefully and apply your technical analysis by looking at the catalysts. All the "bad stuff" that rolls in doesn't bother the market yet. Will it later? Sure, after you have run out of money trying to short it.