SPX:
Inflation numbers and tapering discussions have put many investors on guard since mid-September.
You can see on the chart that the market has broken down a trend line started in March and is now in a bearish channel since the September top.
With a succession of lower lows and lower highs, it's fair to say that bears are in control.
Is this the end of the bull market?
Yesterday (Oct 13) we got a reaction from the bulls despite high inflation numbers and tapering news from the Fed.
So where do we go from here?
I have 3 scenarios:
1. The bullish scenario:
SPX formed a higher low yesterday and has bounced off a strong support (EMA 100). From an Ichimoku point of view, the lagging span has not crossed the top of the cloud, thus not confirming more downtrend (for now).
If we consider that tapering in November is now expected and that inflation will not last, all bad news might be priced in already.
History does not always repeat itself, but, if we consider seasonality, stocks tend to perform very well from mid-October until the end of the year and towards January. Add to that the banks earnings which are good so far.
To confirm the bullish view, a first signal would be to break out of this bearish channel. Then the next target would be to fill that open gap on the chart (between 4420 and 4435) and resume higher to the top of September.
2. The bearish scenario:
We are below the Ichimoku cloud and in the bearish channel. If we don't break out of the bearish channel, pressure to the downside might resume and the next supports are on the chart, with the 200ma in sight.
We could also break out of the channel, fill the open gap, and go down again.
Incertainty would remain as long as we don't form higher lows and higher highs.
Provided this scenario wins, I would expect SPX to reach the 200ma. It would then be a nice buying opportunity to benefit from the next bullish wave.
3. The consolidation scenario:
My third scenario has a neutral tone as we could also go side ways for several weeks/months. We would therefore assume that the low of October is in and that we won't reach an all time high anytime soon.
Let me know what you think.
Trade safe!
More on Ichimoku (by Investopedia):
The Ichimoku Cloud is a collection of technical indicators that show support and resistance levels, as well as momentum and trend direction. It does this by taking multiple averages and plotting them on a chart. It also uses these figures to compute a “cloud” that attempts to forecast where the price may find support or resistance in the future.
Key takeaways:
The Ichimoku Cloud is composed of five lines or calculations, two of which comprise a cloud where the difference between the two lines is shaded in.
The lines include a nine-period average, a 26-period average, an average of those two averages, a 52-period average, and a lagging closing price line.
The cloud is a key part of the indicator. When the price is below the cloud, the trend is down. When the price is above the cloud, the trend is up.
The above trend signals are strengthened if the cloud is moving in the same direction as the price. For example, during an uptrend, the top of the cloud is moving up, or during a downtrend, the bottom of the cloud is moving down.
Inflation numbers and tapering discussions have put many investors on guard since mid-September.
You can see on the chart that the market has broken down a trend line started in March and is now in a bearish channel since the September top.
With a succession of lower lows and lower highs, it's fair to say that bears are in control.
Is this the end of the bull market?
Yesterday (Oct 13) we got a reaction from the bulls despite high inflation numbers and tapering news from the Fed.
So where do we go from here?
I have 3 scenarios:
1. The bullish scenario:
SPX formed a higher low yesterday and has bounced off a strong support (EMA 100). From an Ichimoku point of view, the lagging span has not crossed the top of the cloud, thus not confirming more downtrend (for now).
If we consider that tapering in November is now expected and that inflation will not last, all bad news might be priced in already.
History does not always repeat itself, but, if we consider seasonality, stocks tend to perform very well from mid-October until the end of the year and towards January. Add to that the banks earnings which are good so far.
To confirm the bullish view, a first signal would be to break out of this bearish channel. Then the next target would be to fill that open gap on the chart (between 4420 and 4435) and resume higher to the top of September.
2. The bearish scenario:
We are below the Ichimoku cloud and in the bearish channel. If we don't break out of the bearish channel, pressure to the downside might resume and the next supports are on the chart, with the 200ma in sight.
We could also break out of the channel, fill the open gap, and go down again.
Incertainty would remain as long as we don't form higher lows and higher highs.
Provided this scenario wins, I would expect SPX to reach the 200ma. It would then be a nice buying opportunity to benefit from the next bullish wave.
3. The consolidation scenario:
My third scenario has a neutral tone as we could also go side ways for several weeks/months. We would therefore assume that the low of October is in and that we won't reach an all time high anytime soon.
Let me know what you think.
Trade safe!
More on Ichimoku (by Investopedia):
The Ichimoku Cloud is a collection of technical indicators that show support and resistance levels, as well as momentum and trend direction. It does this by taking multiple averages and plotting them on a chart. It also uses these figures to compute a “cloud” that attempts to forecast where the price may find support or resistance in the future.
Key takeaways:
The Ichimoku Cloud is composed of five lines or calculations, two of which comprise a cloud where the difference between the two lines is shaded in.
The lines include a nine-period average, a 26-period average, an average of those two averages, a 52-period average, and a lagging closing price line.
The cloud is a key part of the indicator. When the price is below the cloud, the trend is down. When the price is above the cloud, the trend is up.
The above trend signals are strengthened if the cloud is moving in the same direction as the price. For example, during an uptrend, the top of the cloud is moving up, or during a downtrend, the bottom of the cloud is moving down.
Let's see if we can go higher from here. Next target would be at about 4462.
Note that yesterday price action has created another gap between 4386 and 4373. This gap will be filled if the price comes to retest the breakout point of the bear channel.