Why do I think 3800 is an important key level for #SPX?
Obviously I have a very detailed view about why/how the US economy will shrink, how certain macro inputs will influence companies profit margins, sales, etc. and the overall market expectations on earnings. I also have a view about rates, bond curve and general liquidity, which will all have a serious further impact on the general multiplier in terms of SPX500 index, and on Nasdaq100 too.
But for now I would only like to check some possibilities and if/how/when the technical picture supports my macro views.
Let's examine charts cleared of Ichimokus clouds, keeping only simple avereges and check for very simple, basic technical patterns.
Daily:
After the initial break of weekly supports (26 weeks average), which has held since May/2020 (with a start of ascending from 2800 price), the index tried to recapture the previous bullish trend twice, reaching a quite surprizing local high at 4590. Failed, dipped down straight to 4370, which until now seems like a higher low. But this higher low, together with the previous price action since the big brerakdown also means that the market might be developing a classic old fashioned bearish flag. The idea is supported by a quite volatile trading pattern too. Is it possible to reach 4500 or even 4550+ leve from here once more? I think absolutely, yes, but in that case it would be a third wave up within the possible flag zone, which means the next leg down could get the SPX500 to another major break below 4400. Shopuld it happen during next 2-3 weeks, it would have very serious consequences: another leg of the bearish trend could pickup momentum, and the market would quite quickly get close to the bearish flag's measured target around 3800.
Weekly:
After the penetration and then the weekly break candle we have the third weekly candle of consolidation. We see the price has been below the 26 weeks average for the 4th week now. We also see below that the momentum indicators have become very weak, or else we can say the long term momentum dropped to a neutral level. This market right now doesn't know what to do, has no real impulse into any direction.... until it suddenly has. Which way will the momentum unfold and lead the market? Well, no one knows it for sure, but there's a good chance the market has started to build a long term major Head and Shoulders pattern. Plerase keep in mind that it "looks like" a head and shoulders, but finishing to develop such a major top pattern might take another 2-5 weeks until the right shoulder is complete, and the pattern also has to be validated by a break of its neckline around 4350. An additional very serious bearish signal would be the break of the 100 weeks WMA which has been catching up, currently at around 4200.
Finally we have an interesting dark blue line below in the depth: that is the 26 Months (!) average, while the light blue one deriving from the dark is the forward looking 26 Months average (telling us where the actual 26 Months average will go to in about 1 month time). Well, what a coincidence, that is also at 3800.
Of course it just a theory and playing around with probabilities, risk measures and possible timings. (Which generally speaking trading is all about.)
How to trade these probabilities, please find out by yourself. Hint: options market is quite an efficient way and gives you an excellent risk/reward, just you have to know when and what you have to buy/sell.
But for now I would only like to check some possibilities and if/how/when the technical picture supports my macro views.
Let's examine charts cleared of Ichimokus clouds, keeping only simple avereges and check for very simple, basic technical patterns.
Daily:
After the initial break of weekly supports (26 weeks average), which has held since May/2020 (with a start of ascending from 2800 price), the index tried to recapture the previous bullish trend twice, reaching a quite surprizing local high at 4590. Failed, dipped down straight to 4370, which until now seems like a higher low. But this higher low, together with the previous price action since the big brerakdown also means that the market might be developing a classic old fashioned bearish flag. The idea is supported by a quite volatile trading pattern too. Is it possible to reach 4500 or even 4550+ leve from here once more? I think absolutely, yes, but in that case it would be a third wave up within the possible flag zone, which means the next leg down could get the SPX500 to another major break below 4400. Shopuld it happen during next 2-3 weeks, it would have very serious consequences: another leg of the bearish trend could pickup momentum, and the market would quite quickly get close to the bearish flag's measured target around 3800.
Weekly:
After the penetration and then the weekly break candle we have the third weekly candle of consolidation. We see the price has been below the 26 weeks average for the 4th week now. We also see below that the momentum indicators have become very weak, or else we can say the long term momentum dropped to a neutral level. This market right now doesn't know what to do, has no real impulse into any direction.... until it suddenly has. Which way will the momentum unfold and lead the market? Well, no one knows it for sure, but there's a good chance the market has started to build a long term major Head and Shoulders pattern. Plerase keep in mind that it "looks like" a head and shoulders, but finishing to develop such a major top pattern might take another 2-5 weeks until the right shoulder is complete, and the pattern also has to be validated by a break of its neckline around 4350. An additional very serious bearish signal would be the break of the 100 weeks WMA which has been catching up, currently at around 4200.
Finally we have an interesting dark blue line below in the depth: that is the 26 Months (!) average, while the light blue one deriving from the dark is the forward looking 26 Months average (telling us where the actual 26 Months average will go to in about 1 month time). Well, what a coincidence, that is also at 3800.
Of course it just a theory and playing around with probabilities, risk measures and possible timings. (Which generally speaking trading is all about.)
How to trade these probabilities, please find out by yourself. Hint: options market is quite an efficient way and gives you an excellent risk/reward, just you have to know when and what you have to buy/sell.