SP500 - Confirming The Cup and Handle or Double Top
Here I'm going to continue a previous idea, the potential formation of a Cup and Handle pattern in the SPX500.
Thanks for having a look at my take on this.
Let me know how it goes and how you view these recent movements
And if this analysis helps, I'd really appreciate a like, it lets me know that what I'm doing is good work.
As we climb back towards pre-Tech Correction Highs, fear of a failure to continue this climb is a well-justified claim. Stimulus on hold till after the Election, an uncertain economic future, continued Lockdowns in Europe and the leading Sector, Tech, having PE Ratios above 35. Furthermore with earning season underway fair value for stocks may take control of the overall sentiment.
However on the flip side, Tech has fast-forwarded its dominance due to the Coronavirus and a return to a more normal society will not reverse this, it continues to be the best on Defense and Growth in this market and with the Holiday season approaching and a Stimulus bill on the way (even if it is next year) there is potential for the SP500's leading and largest sector to continue its climb up ... for now.
CUP AND HANDLE
The recent pullback has been justified:
Both the 4hour and Day chart were above the upper Bollinger Band
4 Hr RSI was overextended above 70
However, we are still moving in line with a Cup and Handle pattern and this will be confirmed if the price fails to break the Major Support at 3410-3426, which is approximately the 50d MA. This should be accompanied by high volume buying at these levels. This will keep the price above Fibonacci P and within the upwards Parallel Channel that brought the SPX500 out of it's recent dip. Furthermore, major constituents of the Tech Sector are at this moment in the pre-market opening above Major Support points:
AAPL:$120
MSFT:$220
NVDA:$560
V:$200
MA:$340
The short interest in AAPL and MSFT have also remained at relatively low levels, fintel.io/ss/us/aapl, fintel.io/ss/us/msft. Suggesting now is not the time to short.
DOUBLE TOP
Being a Trader means not letting any possibility escape your Analysis, therefore it must be accepted that this potential Cup and Handle could instead be a Double Top.
Justifications for this include a recent failure to reach the previous High, although this was likely as the True high of 3580 was a gross overextension and the fair high was more likely 3526. Confirmation of this Double Top will be seen by a Strong High Volume break of 3426 which will lead to fears of an end to the Rally. A true double top will be confirmed by MSFT, AAPL and NVDA breaking their strong Parallel Channels which guided them out of the Coronavirus Crash (Analysis will be provided later today).
Furthermore, light volume on up days and high volume on down days in Tech stocks recently does suggest fear to invest at these already overvalued prices which gives credence to the idea of price reduction. Conversely, this is in line with the Cup and Handle which suggests investors are waiting for a buying opportunity around the 50d MA. This can be justified as Analysts price targets are still far above current levels.
Verdict:
As always confirmation is Key, the pre-market shows modest gains but this could be a sign of a failure to push higher Today. Fear of the unknown over the weekend will likely lead to further selling potentially bringing the SPX500 to its support point test. I would suggest waiting till Monday to see what the new week brings, do we have High Volume buying or does it drop off?
Thanks for having a look at my take on this.
Let me know how it goes and how you view these recent movements
And if this analysis helps, I'd really appreciate a like, it lets me know that what I'm doing is good work.
As we climb back towards pre-Tech Correction Highs, fear of a failure to continue this climb is a well-justified claim. Stimulus on hold till after the Election, an uncertain economic future, continued Lockdowns in Europe and the leading Sector, Tech, having PE Ratios above 35. Furthermore with earning season underway fair value for stocks may take control of the overall sentiment.
However on the flip side, Tech has fast-forwarded its dominance due to the Coronavirus and a return to a more normal society will not reverse this, it continues to be the best on Defense and Growth in this market and with the Holiday season approaching and a Stimulus bill on the way (even if it is next year) there is potential for the SP500's leading and largest sector to continue its climb up ... for now.
CUP AND HANDLE
The recent pullback has been justified:
Both the 4hour and Day chart were above the upper Bollinger Band
4 Hr RSI was overextended above 70
However, we are still moving in line with a Cup and Handle pattern and this will be confirmed if the price fails to break the Major Support at 3410-3426, which is approximately the 50d MA. This should be accompanied by high volume buying at these levels. This will keep the price above Fibonacci P and within the upwards Parallel Channel that brought the SPX500 out of it's recent dip. Furthermore, major constituents of the Tech Sector are at this moment in the pre-market opening above Major Support points:
AAPL:$120
MSFT:$220
NVDA:$560
V:$200
MA:$340
The short interest in AAPL and MSFT have also remained at relatively low levels, fintel.io/ss/us/aapl, fintel.io/ss/us/msft. Suggesting now is not the time to short.
DOUBLE TOP
Being a Trader means not letting any possibility escape your Analysis, therefore it must be accepted that this potential Cup and Handle could instead be a Double Top.
Justifications for this include a recent failure to reach the previous High, although this was likely as the True high of 3580 was a gross overextension and the fair high was more likely 3526. Confirmation of this Double Top will be seen by a Strong High Volume break of 3426 which will lead to fears of an end to the Rally. A true double top will be confirmed by MSFT, AAPL and NVDA breaking their strong Parallel Channels which guided them out of the Coronavirus Crash (Analysis will be provided later today).
Furthermore, light volume on up days and high volume on down days in Tech stocks recently does suggest fear to invest at these already overvalued prices which gives credence to the idea of price reduction. Conversely, this is in line with the Cup and Handle which suggests investors are waiting for a buying opportunity around the 50d MA. This can be justified as Analysts price targets are still far above current levels.
Verdict:
As always confirmation is Key, the pre-market shows modest gains but this could be a sign of a failure to push higher Today. Fear of the unknown over the weekend will likely lead to further selling potentially bringing the SPX500 to its support point test. I would suggest waiting till Monday to see what the new week brings, do we have High Volume buying or does it drop off?
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