SPX500 - Is It a Bullish Flag or a Double Top?
Here I'm going to continue my Analysis of the SPX500 as a battle between a Double Top and Cup and Handle continues to rage on.
Let me know how it goes for and how you view these recent movements
If this analysis helps, I'd really appreciate a like, it lets me know that what I'm doing is good work.
Election. Stimulus. Earnings. 3 Events that are dominating the sentiment of the Stock Market and continue to leave Investors highly uncertain about future direction.
I've discussed at on a few occasions what patterns are starting to emerge in the SPX, namely a Double Top ending the rally or a Cup and Handle leading it to new highs:
Here I'm going to update this idea with a new pattern that's formed, the Bullish Flag.
The BULL:
Supporting the Cup and Handle pattern the SPX500 has formed a bullish flag. With Tech Earnings and the Holiday season right around the corner, many investors who failed to engage in the recent rally may be looking for a buying opportunity. Financials failed to outpace tech with recent earnings, seeing both sectors moving down by just shy of 4%. This could indicate that it is still Tech investors want in on and with anticipation for a surprise beat to earnings and potential for a stimulus bill looking more favorable with Trump's Support (albeit with McConnel's protest), this recent dip could be the time to buy.
Technically Speaking:
-The Bullish Flag remains inside the upwards Parallel Channel, suggesting a bounce off the lower bound could be the signal for upwards momentum.
-The strong support of the 50d MA is meeting the strong support of 3410 which will act as a very strong support for the SPX500
-Momentum is decreasing very slowly, demonstrating a lack of strong Bearish sentiment
-RSI is rejecting the 50 level, showing investors are buying dips
-Bollinger Bands are providing space for upwards volatility which was not available prior to the recent Tech Crash.
-Copper, OIl and correlating Currencies such as the MXNUSD and NZDUSD continue to move higher supporting the Bulls.
-Seen Below, Major Constituents of Tech have shown much lower volume during this recent pause to the rally than in the Tech Crash and show lower volume than the Volume MA as Tech moves steadily down. Potentially indicating mild profit-taking and investors waiting for clear upwards momentum before buying in.
-Also seen is a strong 50d MA support which equities will have to break to scare away the bulls.
The BEAR:
Although currently a Bullish Flag investors must be cautious not to rush in as the SPX continues to move down, relative to PE ratios Tech is overvalued and the rest of the market is yet to catch up. Furthermore, with great economic uncertainty surrounding Stimulus and the still unknown Economic effects of the Pandemic investors may decide now is the time to move out of growth until clearer skies emerge.
Technically Speaking:
-A failure to reach prior highs may indicate an unwillingness to drive the Market much higher, causing investors to profit take and avoid major uncertainty in the coming months.
-Tech earnings may in fact cause investors to re-evaluate currents valuations and look for a fairer price of Technology stocks
-RSI failed to reach 70 on this recent rally which may be demonstrating a fear of overvaluation and continues to have a negative gradient
-Although momentum is holding steady it is decreasing which could spark fear
-The 100d MA has shown to be a stronger support than the 50d MA which could lead strategists to wait for this support to be tested around 3330 before buying into stocks
-Value rotation is looking continually more likely as these stocks are extremely undervalued due to previously priced in uncertainty. Representing a much smaller share of Market Cap this rotation will cause an overall SPX500 Drop.
-As seen in constituent stocks and the broader market no attempt has been made to move higher, with all bullish candles being met by strong selling which could indicate profit-taking
-AAPL and NASDAQ shorts have been steadily increasing demonstrating increased fear, not hope in future price movement (fintel.io/ss/us/aapl, fintel.io/ss/us/ndaq)
VERDICT:
Price points are always your friend in stocks and there are several important levels that must be broken before deciding on how you should invest. 3410 and the 50d MA must be broken to support further downside. This must be accompanied by high volume selling and a failure to substantially reach back above 3410 into the parallel channel. Conversely, for upwards movement, a break out of the Bullish Flag must have further upside to break 3480 and be accompanied by much higher volume than seen in recent days. With low volume, both of these movements will only be a buying opportunity (downside) or final profit-taking (upside) respectively.
Best of luck and Stay Disciplined
Let me know how it goes for and how you view these recent movements
If this analysis helps, I'd really appreciate a like, it lets me know that what I'm doing is good work.
Election. Stimulus. Earnings. 3 Events that are dominating the sentiment of the Stock Market and continue to leave Investors highly uncertain about future direction.
I've discussed at on a few occasions what patterns are starting to emerge in the SPX, namely a Double Top ending the rally or a Cup and Handle leading it to new highs:
Here I'm going to update this idea with a new pattern that's formed, the Bullish Flag.
The BULL:
Supporting the Cup and Handle pattern the SPX500 has formed a bullish flag. With Tech Earnings and the Holiday season right around the corner, many investors who failed to engage in the recent rally may be looking for a buying opportunity. Financials failed to outpace tech with recent earnings, seeing both sectors moving down by just shy of 4%. This could indicate that it is still Tech investors want in on and with anticipation for a surprise beat to earnings and potential for a stimulus bill looking more favorable with Trump's Support (albeit with McConnel's protest), this recent dip could be the time to buy.
Technically Speaking:
-The Bullish Flag remains inside the upwards Parallel Channel, suggesting a bounce off the lower bound could be the signal for upwards momentum.
-The strong support of the 50d MA is meeting the strong support of 3410 which will act as a very strong support for the SPX500
-Momentum is decreasing very slowly, demonstrating a lack of strong Bearish sentiment
-RSI is rejecting the 50 level, showing investors are buying dips
-Bollinger Bands are providing space for upwards volatility which was not available prior to the recent Tech Crash.
-Copper, OIl and correlating Currencies such as the MXNUSD and NZDUSD continue to move higher supporting the Bulls.
-Seen Below, Major Constituents of Tech have shown much lower volume during this recent pause to the rally than in the Tech Crash and show lower volume than the Volume MA as Tech moves steadily down. Potentially indicating mild profit-taking and investors waiting for clear upwards momentum before buying in.
-Also seen is a strong 50d MA support which equities will have to break to scare away the bulls.
The BEAR:
Although currently a Bullish Flag investors must be cautious not to rush in as the SPX continues to move down, relative to PE ratios Tech is overvalued and the rest of the market is yet to catch up. Furthermore, with great economic uncertainty surrounding Stimulus and the still unknown Economic effects of the Pandemic investors may decide now is the time to move out of growth until clearer skies emerge.
Technically Speaking:
-A failure to reach prior highs may indicate an unwillingness to drive the Market much higher, causing investors to profit take and avoid major uncertainty in the coming months.
-Tech earnings may in fact cause investors to re-evaluate currents valuations and look for a fairer price of Technology stocks
-RSI failed to reach 70 on this recent rally which may be demonstrating a fear of overvaluation and continues to have a negative gradient
-Although momentum is holding steady it is decreasing which could spark fear
-The 100d MA has shown to be a stronger support than the 50d MA which could lead strategists to wait for this support to be tested around 3330 before buying into stocks
-Value rotation is looking continually more likely as these stocks are extremely undervalued due to previously priced in uncertainty. Representing a much smaller share of Market Cap this rotation will cause an overall SPX500 Drop.
-As seen in constituent stocks and the broader market no attempt has been made to move higher, with all bullish candles being met by strong selling which could indicate profit-taking
-AAPL and NASDAQ shorts have been steadily increasing demonstrating increased fear, not hope in future price movement (fintel.io/ss/us/aapl, fintel.io/ss/us/ndaq)
VERDICT:
Price points are always your friend in stocks and there are several important levels that must be broken before deciding on how you should invest. 3410 and the 50d MA must be broken to support further downside. This must be accompanied by high volume selling and a failure to substantially reach back above 3410 into the parallel channel. Conversely, for upwards movement, a break out of the Bullish Flag must have further upside to break 3480 and be accompanied by much higher volume than seen in recent days. With low volume, both of these movements will only be a buying opportunity (downside) or final profit-taking (upside) respectively.
Best of luck and Stay Disciplined
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