Is this a bear or a bull market? #SPX at a pivotal point.
Updated
This is the second of two ideas about the SPX. The SPX is approaching a pivotal point. Within the next two weeks we likely will know if we are in a bear market or if we have just been experiencing a major correction like the 2015 correction.
So why now? Why is this the period to watch closely. First, because the declines have halted following a monster, January down-move. The market has had time to digest the down move. Second, its earnings season. The market has new information to digest.
First the levels
Resistance is around 2870. That around the last unfilled gap prior to the bid drop.There are two unfilled gaps above current price.
Support is around 2856. That is also near the unfilled gap made on April 9th. There are four unfilled gaps below current price.
Second the Patterns
There are two that stand out to me. First there is a complex inverted H&S. Second there is a rising wedge. Both suggest a bullish breakout.
Third the indicators
1. The MACD is rolling over for a down move.
2. Stoch RSI head already bottomed out
3. OBV has not recaptured the march OBV highs.
All this suggest a down move is coming.
So what to make of this? We have two gaps to the upside to be filled. Four gaps to the downside. The patterns suggest a bullish move. The indicators suggest a bearish move. All this is happening between our support and resistance lines. I do not know, but I think we will find out very shortly.
There are four possibilities I see. They are below:
Possibility A: The market plows thru the above two gaps to bang on resistance. Then if falls back to cover the four gaps below current price. Then mill then have formed an ugly double top. As mentioned in my previous idea post about the SPX, the yield curve will be much closer to inverting by then.
Possibility A1: The market plows thru the above two gaps. Then it retraces for a Bull flag setup.Then the market plows thru the overhead resistance. The bull market continues, even as the clock counts down to a yield inversion next year.
Possibility B: The market follows the indicators down. As the market goes down, it slices thru the four unfilled gaps. The market might play around with support, but most likely continue thru support. The two upside unfilled gaps remain.....for a very, very, very long time.
Possibility B1: The market comes back down to take out the four downside gaps, then surges up to take out the upside gaps. Finally the market takes out overhead resistance to score a new record high.
Possibility B2: The market comes back down to take out the four downside gaps, then surges up to take out the upside gaps. Finally the market takes out support, thus the bear market continues.
So which one do I think will happen. Well I would like to watch and just see. If you I had to pick. I would say possibility B2. That possibility matches most with what I see. I see we have gaps to take out. I see we have indicators rolling over. I see yield cover flattening, but not yet flat. All that being said, if we wake up tomorrow to surging prices due to earnings, I would be very open to being wrong and going with possibility A1 (higher prices with a bull flag).
So why now? Why is this the period to watch closely. First, because the declines have halted following a monster, January down-move. The market has had time to digest the down move. Second, its earnings season. The market has new information to digest.
First the levels
Resistance is around 2870. That around the last unfilled gap prior to the bid drop.There are two unfilled gaps above current price.
Support is around 2856. That is also near the unfilled gap made on April 9th. There are four unfilled gaps below current price.
Second the Patterns
There are two that stand out to me. First there is a complex inverted H&S. Second there is a rising wedge. Both suggest a bullish breakout.
Third the indicators
1. The MACD is rolling over for a down move.
2. Stoch RSI head already bottomed out
3. OBV has not recaptured the march OBV highs.
All this suggest a down move is coming.
So what to make of this? We have two gaps to the upside to be filled. Four gaps to the downside. The patterns suggest a bullish move. The indicators suggest a bearish move. All this is happening between our support and resistance lines. I do not know, but I think we will find out very shortly.
There are four possibilities I see. They are below:
Possibility A: The market plows thru the above two gaps to bang on resistance. Then if falls back to cover the four gaps below current price. Then mill then have formed an ugly double top. As mentioned in my previous idea post about the SPX, the yield curve will be much closer to inverting by then.
Possibility A1: The market plows thru the above two gaps. Then it retraces for a Bull flag setup.Then the market plows thru the overhead resistance. The bull market continues, even as the clock counts down to a yield inversion next year.
Possibility B: The market follows the indicators down. As the market goes down, it slices thru the four unfilled gaps. The market might play around with support, but most likely continue thru support. The two upside unfilled gaps remain.....for a very, very, very long time.
Possibility B1: The market comes back down to take out the four downside gaps, then surges up to take out the upside gaps. Finally the market takes out overhead resistance to score a new record high.
Possibility B2: The market comes back down to take out the four downside gaps, then surges up to take out the upside gaps. Finally the market takes out support, thus the bear market continues.
So which one do I think will happen. Well I would like to watch and just see. If you I had to pick. I would say possibility B2. That possibility matches most with what I see. I see we have gaps to take out. I see we have indicators rolling over. I see yield cover flattening, but not yet flat. All that being said, if we wake up tomorrow to surging prices due to earnings, I would be very open to being wrong and going with possibility A1 (higher prices with a bull flag).
Note
looking at tomorrow. I am leaning bullish, however, it is within a longer term bearish view. If we open positive tomorrow (which I expect):
I expect we will hit 2674.42 in the morning. There is an ugly H&S on the 3 minute chart. That is near the weekly pivot point. Further, When you scroll up the charts from 3 minute to 1 hour the MACD looks good for a recovery from today's losses. After that, we will have to see the shape of things. I see another possibly target between 2699.27, near the gap down made on 18 April 2018.
If things look like they are going south on the 3, 5, 15 minute charts in the morning, I expect a target 2657.12. With support around 2644 area.
Note
well, hit two of the three targets for the day. We hit the initial target of 2674.42 soon after the open. Woo-hoo! We did not hit the second target. We failed with both a 5 minute MACD cross down and double top formation shortly thereafter. The 2699.27 target did not materialize. We then went for and surpassed the 2665.12 target. Sweet, had something to aim for after the double top formation. So what about tomorrow? I expect we will gap up tomorrow morning. The market is very oversold. That being said, I would be nimble in the morning. I think we could have a monster rally all the way back up to 2656 or we could hit as low as 2602.79. Why do I say that? If you look at the 15 minute chart you can see an ugly and kind of flat H&S with a projection down to 2602.79. The is just points above the recent lower low in the index.
Note
It looks like we will close the 2604 gap this morning. this is the last downside gap. If things do not turn around, we may test the psychologically important 2600 price. The H&S on the 15 minute chart has a minimum projection at 2602.79.Note
Well today was interesting. We did not hit either of my targets and did not close the 2604 gap. hmmmmmmmmmm. The market is oversold, yet has not finished closing the downside gaps. Tomorrow, I think we could rally to the 2653-2656 level. That being said, I would not stay for to long. The market could form an upside down flag tomorrow. If that happened price could retest the 2600 level.
Note
We surpassed my upside target by a wide margin. My target was 2653-56. We ended 2666.94. Today was also the monster rally I was looking for on Wednesday.The market is slightly overbought. Further the shape of the today's movement will be hard to sustain. I expect we will likely see significant downside in the days ahead. My target for tomorrow is 2639 on the downside and 2708 on the upside. Most likely we will hit 2639 only.
Tomorrow will be a critical day. If we can continue higher and close the 2608 gap we might have a chance at higher-highs soon. If we cannot, I expect the SPX will form an upside down flag, thus breaking to new lows below 2604 over the next 4 weeks.
All that being said, zig or zag. it could go either way.
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