Having watched the S&P500 drop to lower lows twice this week and it's becoming clear the market wants to test the low of the February dump at 252.92. We came close Friday with the low of day hitting 262.29, but in my opinion the market needs to break 260 and test the 250s in order to have confidence that low can hold.
Back in February we had a much faster dump down, 11.76% from the recent high over 10 trading days, seeing a significant bounce once the bottom was found. We're now 26 days into the pullback form our recent high, with a couple bounces along the way cooling off RSI levels enough to see another leg down. This move is a much slower, and more sustainable move to the downside as we aren't seeing levels get as oversold as fast.
How far are we from the February lows?
We're pretty close. It would take 4.6% drop from Friday's close to get us to the February low, which is the key support to hold on this test. In my opinion this test is more likely than not to hold, and we are more likely than not to have a bounce before reaching that level. The size of that bounce will be important. The size of that bounce would help us anticipate if we are likely to set a higher low compared to the temporary bottom I expect to find in the coming days, or if we will continue down to set a lower low.
We are watching some bullish divergence set up on the daily chart on both the RSI and MACD oscillators, giving further clues to watch the shorter term timeframes for a daily bounce to start. When that bounce comes, I would expect to set a lower high on the weekly chart compared to our all time high, and once thta bounce gets underway we can start to pick potential targets for that bounce.
I called 252.92 a key level up above. A break of 252.92 would register as a lower low on the month chart. The last time the monthly chart lost the uptrend was in January 2008, and from there it took the market until March 2009 to find its bottom.
I'm watching the 4hr chart here to help me determine when we have likely finally bottomed out on this pullback. You can see for the past few weeks the 4hr chart is in a pretty clear downtrend, with each little bounce just forming a lower high. To turn this around the bulls are going to need to need to bounce to form a higher low compared to the low of this current pullback, and then bounce to break resistance, forming a higher high. That would give us a 4hr trend change, after which we'll zoom out and watch for the daily bounce to get underway.
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I plan on posting analysis of the mj sector tomorrow. However.....
For anybody looking at any individual stock it is imperative to keep an eye on the overall market. The correlation of every individual name and sector to SPY market is very real and the market is showing significant weakness over the past three weeks with warning signs of further potential weakness potential into next week. I'm a member of The Chart Guys community, and one of their founders recently wrote a great analogy:
"SPY is the wind and sectors are the ships and individual companies are the people on the ship.
We want to go North. It will be MUCH HARDER if the wind is not going North.
Ships are going to do their own thing, some faster some slower, but prevailing winds are key.
Some people (companies) can get ahead on the ship (sector peers) by walking from the rear to the front, but they are still limited by the ship.
Oh and engines are not invented yet."
Back in February we had a much faster dump down, 11.76% from the recent high over 10 trading days, seeing a significant bounce once the bottom was found. We're now 26 days into the pullback form our recent high, with a couple bounces along the way cooling off RSI levels enough to see another leg down. This move is a much slower, and more sustainable move to the downside as we aren't seeing levels get as oversold as fast.
How far are we from the February lows?
We're pretty close. It would take 4.6% drop from Friday's close to get us to the February low, which is the key support to hold on this test. In my opinion this test is more likely than not to hold, and we are more likely than not to have a bounce before reaching that level. The size of that bounce will be important. The size of that bounce would help us anticipate if we are likely to set a higher low compared to the temporary bottom I expect to find in the coming days, or if we will continue down to set a lower low.
We are watching some bullish divergence set up on the daily chart on both the RSI and MACD oscillators, giving further clues to watch the shorter term timeframes for a daily bounce to start. When that bounce comes, I would expect to set a lower high on the weekly chart compared to our all time high, and once thta bounce gets underway we can start to pick potential targets for that bounce.
I called 252.92 a key level up above. A break of 252.92 would register as a lower low on the month chart. The last time the monthly chart lost the uptrend was in January 2008, and from there it took the market until March 2009 to find its bottom.
I'm watching the 4hr chart here to help me determine when we have likely finally bottomed out on this pullback. You can see for the past few weeks the 4hr chart is in a pretty clear downtrend, with each little bounce just forming a lower high. To turn this around the bulls are going to need to need to bounce to form a higher low compared to the low of this current pullback, and then bounce to break resistance, forming a higher high. That would give us a 4hr trend change, after which we'll zoom out and watch for the daily bounce to get underway.
_____
I plan on posting analysis of the mj sector tomorrow. However.....
For anybody looking at any individual stock it is imperative to keep an eye on the overall market. The correlation of every individual name and sector to SPY market is very real and the market is showing significant weakness over the past three weeks with warning signs of further potential weakness potential into next week. I'm a member of The Chart Guys community, and one of their founders recently wrote a great analogy:
"SPY is the wind and sectors are the ships and individual companies are the people on the ship.
We want to go North. It will be MUCH HARDER if the wind is not going North.
Ships are going to do their own thing, some faster some slower, but prevailing winds are key.
Some people (companies) can get ahead on the ship (sector peers) by walking from the rear to the front, but they are still limited by the ship.
Oh and engines are not invented yet."