SPX Triangle Will Break Soon but Which Way?Which Way Will the SPX Triangle Break? Consider All the Arguments
Ever since the October 2022 lows, the S&P 500 SP:SPX has been consolidating especially when considered on larger time frames like daily and weekly. This consolidation has formed what is known as a triangle pattern (or symmetrical triangle). A triangle is a consolidation pattern that represents equilibrium in the balance between buyers and sellers. The range narrows and price action compresses until the consolidation ends. The Primary Chart above shows the current triangle that has formed. It is essentially a collision between a 3-month uptrend and a 13-month downtrend (lasting over a year since January 2022 highs). So long as price remains in this triangle, uncertainty about the intermediate term direction will likely remain. Many triangles have arisen this year, and each one has led to new lows. This one may as well, as the yield curves and macro data support this outcome. But price could whipsaw out the top of the triangle for a month or two before heading to lows. All possibilities remain on the table. For further discussion on the details of this triangle, please refer to the linked chart and post under Supplementary Chart A below.
Supplementary Chart A
1. Arguments for Bear-Market Continuation and Further Declines to New Lows
VIX has been trending lower to new lows. But this argument cuts both ways—it lies at multi-year support as well as the support zone for this entire bear market. It’s not a spot to be complacent. On the other hand, VIX could be forming a new seasonal range lower than the past few years. The downtrend in volatility must be respected until it breaks. But the break could be vicious and fast, occurring in a matter of hours / days. For now, VIX keeps failing right at the down TL from early October 2022 peaks.
Supplementary Chart B (VIX)
Consider the orange-colored down trendline from mid-October 2022 highs. Price continues to fail at that down TL. But price is also in the yellow rectangle, which is the major support / demand zone for volatility over the entire bear market to date. The pink uptrend line is a multi-year uptrend line where VIX has found support since 2017.
SPX shows a daily bearish divergence on RSI. But no weekly divergences yet. Stochastics and another indicator (EFI) both show clear divergences on the daily. But sometimes triple divergences form. And sometimes, these divergences are erased with higher price action. Divergence create the conditions for a decline, they don’t guarantee one. And without weekly divergences yet, this minor daily divergence is too weak a signal to take to the bank.
As of the December 2022 FOMC meeting, the Fed had not paused and it had not pivoted. In fact, the Fed remained hawkish, communicating a “higher for longer” message to markets. The FOMC’s published SEP (Summary of Economic Projections) showed that rates were forecasted to peak at 5.1% (on average) which was higher than its prior rate forecast of 4.6%. The Fed’s projections also showed that it expected no rate cuts throughout 2023. In other words, higher for longer, even if rate hikes were paused.
Will the Fed’s messaging and policy from December 13, 2022, remain steadfast? If so, the markets will likely struggle to find a way higher unless they continue to completely disbelieve the Fed. Note that rate markets (and equity prices) are currently disagreeing with the Fed about rate cuts later this year. That all could change on February 1, 2023.
Money supply has continued to shrink. Tom McClellan said to financial media recently that M2SL has been shrinking while GDP has been growing, and this has never happened—the ratio of M2/GDP has never been shrinking this fast. Note that there is a lag b/w M2 changes and the effects on markets. But M2 has been shrinking for a while now. Note that when M2 rises faster than GDP, this can fuel rallies a year later, but this is the opposite of that scenario.
However, note that US Treasury Department maneuvering relating to the debt-ceiling crisis could hamper the Fed’s efforts to drain liquidity from markets. Other than its general effect on markets, this maneuvering is well beyond the scope of this article and the author’s knowledge.
Consumer spending and corporate profits cannot hold up much longer given the leading economic indicators (PMIs, ISMs, Empire State Manufacturing Index, retail sales reports from December, mortgage applications, and housing data). But equity markets don’t seem convinced. Markets can remain irrational longer than traders can remain solvent.
Gold on a ratio chart to SPX (GLD/SPX) is still outperforming. This is not an all-clear signal for equities, especially the blue-chip index of US stocks.
Supplementary Chart B (GLD/SPX)
Typically, a bear-market bottom / final low does not happen while yield curves remain inverted. One WS analyst stated unequivocally yesterday that 85% of the yield curves are currently inverted. According to that firm's indicators, if more than 55% of the yield curves are inverted, a recession always follows. But when? The timing is the tricky part especially for traders and investors. Bear markets can fool the vast majority.
The 3m/10y curve has been inverted to levels not seen since 1981. The inversion has fallen deeper into negative territory than any other inversion on the data available on TradingView’s charts. The final bear-market low typically happens after the Fed has pivoted and cut rates for some time. And remember, when the Fed cuts, it’s not because the economic outlook and corporate earnings are bright. Rather, the Fed cuts because of deteriorated economic conditions, tanking earnings and earnings estimates, horrible employment numbers (a recession).
Supplementary Chart C.1 (3m/10y)
For further discussion on the 10y/3m yield curve, see the post linked here:
Supplementary Chart C.2
Recent PMI data from SP Global was negative economically (US Manufacturing PMI at 46.7 while December was 46.2, and US Services PMI at 46.6 while December was at 44.7) though it moderated somewhat (slightly less negative) from the prior month’s data.
“The US economy started 2023 on a disappointingly soft note with business activity contracting sharply again in January. It showed subdued customer demand and impact of high inflation on client spending. January data also indicated a “faster increase in cost burdens at private sector firms. Although well below the average rise seen over the prior two years, the rate of cost inflation quickened from December and was historically elevated.”
The commentary by SP Global’s economist provided along with their recent PMI report noted that “not only has the survey indicated a downturn in economic activity at the start of the year, but the rate of input cost inflation as accelerated into the new year, linked in part to upward wage pressures, which could encourage a further aggressive tightening of Fed policy despite rising recession risks.” This suggests that even if inflation has peaked, it may not be heading to the 2% target as fast as it moved down from the peak to the current levels. And it implies that stagflation may be around the corner as economic growth slows but sticky inflation does not dissipate.
Major past selloffs in markets have been preceded by a very low unemployment (UE) rate. The rate has been as low as 3.5% recently. One analyst, Eric Johnston at Cantor Fitzgerald, noted that investors would do well by buying markets when the UE rate is 9% to 10%, and selling the market when it reaches extreme lows from 3% to 4%. UE rates haven’t begun to significantly roll over, and the Fed has remained focused on the tight labor markets and services sectors as sources of more sticky inflation. So if PMIs from January are showing wage pressures increasing somewhat, that doesn’t suggest the Fed will be *cutting* rates soon, though a pause may be discussed as rates approach 5%.
Taxes as a percentage of GDP are at the level that coincides with recessions. Taxes are 18% of GDP.
2. Arguments for a Rally That Precedes New Bear Market Lows
First, a rally that breaks the down trendline does not immediately negate the bear market. The 2000-2002 bear market experienced a substantial multi-month break of its down trendline (complete with a successful backtest after the break) before the next major leg down to new lows occured.
Supplementary Chart D (2000-2002 Example)
SPX continues to stabilize above major support / resistance zones such as 3900 and 3950. And it has closed above 4000 three consecutive days this week: January 23, 24, and 25. When it meets the down TL, it has not been reacting lower the way it has on every other test of the trendline during this bear market. It’s spending quality time with the TL, which is a new phenomenon / characteristic when price and the TL meet.
SPX continues to hold above major anchored VWAPs from August, October, and December 2022, which range from 3850 to 3900.
AAPL's price action is fairly bullish in the short-to-intermediate term. Here are the bullish technicals arising on AAPL's chart.
AAPL’s daily chart shows a failed breakdown beneath major support levels over the past year. AAPL broke below $134.37 and $129.04 and fell to a new low, but quickly reclaimed $129.04 and $134.37, so this constitutes a failed breakdown. The failed breakdown is visible on the daily chart, so this is supportive of prices for several weeks to a couple months. $134.37 was the level coinciding with the lows from October 13 and November 4, 2022. $129.04 was the June 2022 low, which was undercut in December 2022 and early January 2023. Price broke below all these levels and then immediately reclaimed them.
AAPL’s failed breakdown coincided with a tag of the parallel downtrend channel from the all-time high.
AAPL shows positive (bullish) divergences with momentum indicators on both the daily and weekly charts.
AAPL remains right at or slightly above the down TL from the mid-August 2022 highs, which was a fairly steep 5-month downtrend.
AAPL remains above a short-term TL from June lows, but it also remains contained in its downtrend channel from the all-time high. AAPL is in no-man’s land, with some bullish forces that brought it here (divergences and failed breakdowns)
Supplementary Chart E.1 (AAPL's Failed Breakdown)
Supplementary Chart E.2 (AAPL's Parallel Channel Support)
NDX (Nasdaq 100) broke above its down TL (linear chart only) and has held above it as well. It also has been making higher lows since the October 2022 lows.
Supplementary Chart F.1 (NDX QQQ Log TL)
Supplementary Chart F.2 (NDX QQQ Linear TL)
IWM broke above its down TL on both log and linear charts. But it remains at critical resistance at the $188-$192 zone. It remains above intermediate term VWAPs from swing highs and lows in August, October and December 2022 (which are around $180), but it still remains below the VWAP anchored to its all-time high.
Supplementary Chart G (IWM Linear TL)
HYG broke above its down TL. Like other TL breaks, this could ultimately be a false signal, but here it has persisted for some time. HYG had a breakout above its down TL in the 2007-2009 bear market driven by the great financial crisis. This breakout was a false signal b/c the bear market was not over until early 2009, when the SPX made new lows. HYG resumed a downtrend after breaking above its down TL and went back to lows again and made lower lows, a move that coincided with SPX heading to new lows in Q1 2009. HYG shows a small bearish divergence on RSI on the daily chart. Wait for a larger bearish divergence to form on both daily and weekly charts perhaps.
VIX has been trending lower to new lows. But this argument cuts both ways—it lies at multi-year support as well as the support zone for this entire bear market. It’s not a spot to be complacent. On the other hand, VIX could be forming a new seasonal range lower than the past few years. The downtrend must be respected until it breaks. VIX keeps failing right at the down TL from early October 2022 peaks.
Consumer spending and corporate profits cannot hold up much longer given the leading economic indicators (PMIs, ISMs, Empire State Manufacturing Index, retail sales reports from December, mortgage applications, and housing data). But equity markets don’t seem convinced. Markets can remain irrational longer than traders can remain solvent.
Earnings at major publicly traded companies may not be deteriorating quickly enough to disprove the “soft-landing” narrative that pervades markets. Recession does not mean stocks go straight to lows when yield curves have inverted. Recessions take time to unfold, just as the damage to economies takes time when rates are restrictive. There is a lag.
Both FTSE and DAX have taken out the highs from mid-December 2022. FTSE is approaching multi-year highs. Both have broken above down TLs from the bear market. Both have decisively reclaimed 200-day SMAs. Both have been forming higher highs and lows
Multi-week bear-traps occur frequently where significant down trendlines are broken until the bear market resumes in earnings in a period of several weeks or months. The 2000-2002 bear market provides an excellent example of this. So a break to the upside in the triangle pattern on SPX may last for several weeks or even months before the real downside move begins. Just because it’s been challenging and choppy does not mean it won’t get worse and more trappy.
The third year of a presidential term (US markets) is nearly always bullish. There have been exceptions according to Tom McClellan (technical expert citing 1939 as an exception to this rule but noting that Hitler’s army was marching across Poland at the time). Some have said that the most bullish quarter of the presidential cycle is Q1 of the third year (technical expert Mark Newton speaking to financial media on January 24, 2022).
Breadth has been strong lately, and some technical analysts have cited “breadth-thrust” indicators as giving bullish signals.
Markets continue to disbelieve the Federal Reserve. Consider the differential b/w the Fed’s forecasts and the rate markets forecasts about whether rate cuts will happen this year, and where the terminal rate will be. So even if the Fed remains hawkish at the next meetings, perhaps it won’t matter. Markets will do what they want to do, including "fighting the Fed." You don't have to fight the Fed though or any other central bank. But don't fight the trend either.
The Fed’s messaging at the February 1, 2023 FOMC presser may be slightly more dovish, or it may be interpreted as dovish if Powell so much as mentions a pause in hikes, or that the FOMC is discussing a pause. Even if Powell remains hawkish, sometimes markets can interpret the Fed Chair’s statements (sometimes ambiguous) the wrong way—recall that this happened at the July FOMC in 2022, after which Powell cleared up the confusion at Jackson Hole in August 2022 (tanking markets immediately).
Equity positioning remains fairly underweight US equities according to financial experts on this subject. This could lead to momentum chase higher to trap all the bears before the real decline gets underway. Maybe stocks continue higher until two things occur: EPS estimates fall further, employment numbers start getting quite ugly, and the Fed is not as accomodative as it has been in past economic recessions (because while inflation has peaked, it may not fall directly to the 2% target, and with easing financial conditions, perhaps inflation could stop falling rise in Q1 2023)
Equal-weighted S&P 500 (RSP) has broken above its down TL on a daily close as of January 25, 2023.
The offense-defense ratio (consumer discretionary divided by consumer stables) RCD/RHS shows a breakout in this ratio above 8-month highs in the ratio’s value. This potentially signals near-term strength in equity markets as offensive stocks (consumer discretionary) outperform stocks defensive names (consumer staples)
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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Downwardtrendline
DXY May Be Reversing Back Higher AgainPrimary Chart: DXY Daily Chart with Upward Trendline, Downward Trendline and Fibonacci Levels
Dollar strength starting in early 2021 lasted until the fall of 2022. It was nothing short of impressive. But DXY (the dollar measured against a basket of five other major currencies) started topping in September 2022 and then began making lower lows and lower highs, the very definition of a downtrend.
Technical evidence shows that DXY may be reversing higher. Interestingly, it is reversing higher right at key support shown by the dark purple line at 101.29. No one knows whether DXY will return to all-time highs or whether it will fail at one of the many technical obstacles presented on the Primary Chart above. But one can extrapolate from the technicals that a significant reversal has taken place in the dollar. This may lead to multi-week or multi-month strength, or it may lead to a choppy price action that retraces some portion of the downtrend since September 2022 (see Fibonacci levels above) or creates an sideways choppy range for some time.
The main technical points concerning this reversal follow:
DXY was in primary-degree uptrend since May 2021, and this ended at a high of $114.77 in September 2022. Note the yellow uptrend line that dates back to the May 2021 lows.
After reaching its high in September 2022, DXY began forming lower highs and lower lows. This started with a trading range that lasted for some time indicated by the teal rectangle covering price action from September to November 2022. This area forms an area of major resistance that could likely be reached as part of a backtest of this range or a move to new multi-year highs.
The 8-hour DXY chart shows the Bollinger Bands' jaws opening (2 standard deviations) indicating an expansion of volatility consistent with the start of a new trend. Price is now walking the bands, a sign of strength and momentum sufficient to continue the start of a new trend. This technical feature should soon translate to the Bollinger Bands on a daily chart, which still show compression. Price first pierced the lower Bollinger Band, which is a fakeout that is not uncommon just before a breakout after a volatility squeeze (shown by compression in the bands). See Supplementary Chart A below.
Supplementary Chart A
The first (most conservative) target is a backtest of the yellow uptrend line from May 2021. That lies around $103.60 to $104.50 in the next few days.
If the yellow uptrend line is reclaimed, that will be a further bullish development that will likely lead to a significant retracement of the decline from September 2022. In this case, the second conservative target is $106.15, which coincides with the 38.2% Fibonacci retracement of this multi-month decline.
The third target is the 50% retracement at $107.80, and it is reasonable to expect if the yellow uptrend line is reclaimed.
The final target is the 61.8% Fibonacci retracement at $109.44, and this is also valid target if the yellow uptrend line is reclaimed. This level coincides with major resistance (formerly support) at the base of the trading range that developed as DXY was topping in September - early November 2022.
One could make a bold prediction (bearish on risk assets) that the dollar is heading back to new all-time highs. Or one could say that risk assets will continue to rise to new all-time highs so this move in the dollar will be short-lived. These are both rooted in a biased idea of how DXY and SPX / NDX correlate and should move in the intermediate term. Rather than making bold predictions from a clear reversal in DXY, it helps to remain open to the price action and how it unfolds. We can recognize the reversal for what it is and what it implies without the need to become mired in tenuous predictions about whether DXY is returning to new all time highs. If price recovers the .618 retracement, the odds rise dramatically for new all-time highs. But until then, we can expect dollar strength based on the reversal patterns discussed. And the Fibonacci retracements are not unreasonable targets to expect in the coming weeks and months.
Lastly, consider that the dollar remains in an uptrend that has existed even longer than the one since May 2021. This is the 15-year uptrend represented in the Supplementary Charts B.1 and B.2 below. The yellow line on the Primary Chart only represents a rate of trend that has existed for a little more than 1.5 years, but this trend has occurred within an even larger degree uptrend in place since about 2008.
Supplementary Chart B.1
Supplementary Chart B.2
Thank you for reading and considering these charts!
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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
AAPL's Four-Month Triangle May Be BreakingPrimary Chart: AAPL's Four-Month Triangle with Various Trendlines and VWAPs
SUMMARY:
AAPL's longer-term charts show a symmetrical triangle arising from the convergence of a down trendline from January 2022 (dark blue) and an up trendline from March 2020 lows (also dark blue). This triangle appears to be in the process of breaking on arithmetic charts.
When considering that long-term trendlines don't break easily, price may retest or whipsaw above and below this long-term up trendline (from March 2020 lows) two or more times before the line can finally break decisively.
The first major level of importance below this 2020-2022 up trendline is the VWAP anchored to the 2020 lows. This VWAP lies at approximately 127.61 today. On a logarithmic chart , this VWAP coincides with a longer-term up trendline in the coming 2-4 months (see Supplementary Chart B below). This is probably the most conservative downside target if the bear market continues to pressure prices lower.
Another anchored VWAP from the January 2019 lows is approximately at 102.45. This level coincides with the .618 retracement of the 2020-2022 rally starting at the Covid lows, which equals 102.71. See Primary Chart. But before discussing these levels around $102-$103, price must first break through the .50 retracement of its 2.5-year rally from March 2020 to January 2022. The .50 retracement lies at $118.02 .
Another long-term up trendline from the January 2019 low appears on the Primary Chart in light blue. This even longer-term trendline coincides with the .618 retracement of the 2020-2022 rally off the Covid lows and the VWAP anchored to the January 2019 low. If this long-term trendline is tested next year in January or February, it would be about $102-$103, the same level as the VWAP from the January 2019 low and the .618 retracement of the 2020-2022 rally—where the yellow circle appears on the Primary Chart. Could this be where AAPL puts in a lasting bottom at 102-103?
This analysis will briefly cover some of the broader and longer-term levels for AAPL. If the downtrend continues as it has, and the macroeconomic and interest-rate environment remains challenging for equities, AAPL may reach the levels identified.
AAPL's four-month triangle has formed from the convergence of two trendlines: (1) a downward-sloping trendline from its all-time high to the present (dark blue) and (2) an upward-sloping trendline from the pandemic-crash low in March 2020 to the present (also dark blue). On an arithmetic chart, AAPL appears to have violated this multi-year upward trendline in recent days with a couple closes below the line.
One interesting perspective on the 2020-2022 trendline appears on a logarithmic chart. AAPL has shown a more decisive break of this 2020-2022 up trendline, which appears as an orange line on this Supplementary Chart below:
Supplementary Chart A: Logarithmic Chart with Upward Trendlines from March 2020 low and January 2019 Low
But when multi-month triangles like this break, and when multi-year trendlines like this break, it should be expected this could be a process rather than a quick event, assuming the trendline is valid. In part, this is because multi-year trendlines and multi-month triangles do not break and dissipate easily. The lower trendline of the triangle pattern is a multi-year trendline from the Covid lows to the present. Price does not always just break right through such an important level. On occasion, it can slice right through a level deemed consequential and long-term. But often when encountering a very important longer-term level, price can tag it, then break it repeatedly in both directions, whipsawing above and below the line a few times before following the ultimate direction it will take. Or it can break the line and then retest it from underneath a couple times as well.
Levels of importance below this trendline are the VWAP anchored to the March 2020 low. The anchored VWAP from this 2020 lows is shown in light red. Currently, that VWAP lies at $127.61, but this can change over time due to the dynamic nature of VWAP calculations. Because it is longer-term, it shouldn't change too dramatically in the coming days or weeks unless a very sizeable rally or crash takes place.
Another longer-term anchored VWAP from the January 2019 lows is approximately at 102.45. This level currently coincides with the .618 retracement of the 2020-2022 rally starting at the Covid lows, which lies at 102.71. See Primary Chart.
But before discussing this 2019 anchored VWAP and .618 retracement around $102, price must first break through the .50 retracement of its rally from March 2020 to January 2022. The .50 retracement lies at $118.02 .
Another even longer-term trendline can be drawn from the January 2019 low to the present. This trendline intersects with the .618 retracement early next year in January to February 2023 (see the yellow circle on the Primary Chart). This level also coincides with the approximate location of the 2019 anchored VWAP (dark purple)—the current trajectory of this 2019 anchored VWAP looks as if it may run near or through the yellow circle in the next 3-5 months.
Ultimately, this is not intended to be a bold, heroic prediction that AAPL will certaintly reach $127, $118, or $102. If the downtrend structure continues to remain intact, and rallies get sold, then these are viable targets. In short, this is just a technical overview showing that these levels are higher probability targets that could likely be reached if AAPL continues the path of least resistance lower.
Lastly, consider the March 2020 anchored VWAPs discussed in this post and its relationship to the same trendlines discussed except drawn on a logarithmic chart. The 2019-2022 trendline (light blue) coincides with the March 2020 anchored VWAP (or nearly does). This level will be about $127-$130 in 1-3 months. So perhaps this can be both a conservative target or a more intermediate term low in this bear.
Supplementary Chart B: Anchored VWAPs Position Relative to Logarithmic Trendlines
SPY the Anchored VWAPs during Choppy Price ActionPrimary Chart: Long-Term Anchored VWAPs and YTD Down Trendline
Whenever price action gets confusing, it can help to take a step back and consider the larger picture again. Many experts have weighed in after each consecutive low in this year's bear market, with some claiming that the lows are in, and others claiming price has much further to fall after the inevitable relief rallies.
Placing the Current Price Action into Context with Anchored VWAPs with Different Lengths
The Primary Chart shows several important VWAPs anchored to both longer-term and more recent swing highs and lows. The anchored VWAPs all help provide a broader picture of what is happening with price on major equity indices like the S&P 500, which is tracked and analyzed here using the S&P 500 ETF AMEX:SPY . (Note that SPY values are roughly equivalent to SPX values, so SPX is typically a multiple of 10 times SPY, though SPY typically trades at a slightly lesser level than SPX after conversion.)
The anchored VWAP from the pandemic low on March 23, 2020, is gold colored and remains above price as resistance with a flat to slightly downward slope. This VWAP has a value of 385.51 as of today.
The VWAP anchored to the all-time high on January 4, 2022, is orange colored and slopes downward well above price. This VWAP currently has a value of $416.71 as of today.
The Primary Chart also shows two blue-colored VWAPs anchored to recent major swing highs and lows: (i) the swing high on August 16, 2022, and the swing low on June 17, 2022. These also have a sharp downward slope and are above current prices as resistance. These VWAPs values range currently from about 389.08 to $390.57.
Lastly, the VWAP anchored to the September 30, 2022, low, which is the YTD low, is red colored and sloping upward with price above it. Provided price can hold above this VWAP, and as long as it remains upward sloped, it suggests shorter-term trends remain choppy to upward.
The YTD trendline that has contained price (light blue) also confirms what the VWAPs show. This downtrend line has rejected price multiple times even after powerful, sharp multi-week rallies. When this line is broken to the upside and the VWAPs are reclaimed as well, one might begin to discuss whether the trend structure could be changing and whether the lows are more lasting. Until such time, rallies should be viewed with some level of suspicion. Price could rally hard, as it has done multiple times already this year, and convince many that the lows are in, only to reverse and continue the downtrend right at the critical resistance levels.
Placing the Current Downtrend into an Even Larger Context
A recent SquishTrade analysis from October 1, 2022, discussed the 13-year secular uptrend in the S&P 500 ( SP:SPX ), noting that SPX had fallen below the midpoint of the 13-year channel. The post with that analysis can be found here.
Supplementary Chart: 13-Year Secular Uptrend on Logarithmic Chart
To summarize the analysis from that prior post, the current trend—a bear market— could continue until the lower edge of the channel without changing the very long-term "secular" uptrend at all. The lower edge of the channel lies at $3000-$3100 in the coming months. More specifically, the prior post on this 13-year secular uptrend noted the likelihood that price could come into the lower edge of the channel without changing the structure of the longer-term secular uptrend:
"Eventually, price may likely come into contact with the lower edge of the channel—and the long-term secular uptrend will still be intact and neatly contain this bear market. In other words, this bear market at the level of primary trend will not invalidate the secular uptrend, unless price breaks that line around SPX 3000-3100 (considering where the line lies in 3 to 6 months)."
Since the September 30, 2022, low, price has now recovered to retest the midpoint of that channel at approximately SPX 3756, and price is chopping around the midpoint now.
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Author's Comments:
(1) Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate in the comment section. Shared charts are especially helpful to support any opposing or alternative view.
(2) This technical-analysis view does not constitute a trade recommendation or trade setup. Instead, it attempts to offer technical commentary that describes and analyzes price levels, trends, price action, or the broader technical environment as of the publication date. Technical-analysis commentary does not equate to trade setups or recommendations. Within a given price environment, traders bear responsibility for their own trading strategy, risk tolerance, and time frame, and for any due diligence associated with such trades.
(3) This technical-analysis viewpoint could change at a moment's notice, e.g., when price violates a key level of invalidation for a particular view. Further, proper risk-management techniques are vital to trading success.
(4) To the extent countertrend price moves are discussed, consider that countertrend or mean-reversion trading, e.g., trading a rally in a bear market, remains higher risk and lower probability even for the most experienced traders and investors.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified / licensed financial adviser or other financial or investment professional before entering any trade, investment or other transaction.
AMD Stuck in a Severe DowntrendPrimary Chart: Linear Regression Channel and Two Long-Term Anchored VWAPs
No matter what method is used to analyze and define the trend, AMD has been stuck in a severe downtrend since its all-time high on November 30, 2021. Like other growth and technology stocks (except for FAANG stocks and Microsoft), AMD's November 2021 peak occurred a month before the S&P 500 ( SP:SPX ) topped on January 4, 2021.
The linear regression channel, set a two-standard deviations from the linear regression line, evidences the downtrend as of today, October 6, 2022. Price is hovering just under the linear regression channel's midline, which is the linear regression "line of best fit."
Two anchored VWAPs also confirm the validity of the downtrend as well. The first anchored VWAP is anchored to the all-time high in November 2021. That VWAP is well overhead at $102.38 as of today, and it slopes downward. Note how it has been resistance at major swing highs after sharp bear rallies over the past year. The second anchored VWAP is anchored to the pandemic-crash lows in March 2020. That VWAP also lies well overhead at $92.16 as of today. These VWAPs show that sellers remain in control despite the impressive bear rallies that have repeatedly occurred since the all-time high.
Until the structure changes materially, and that could take a fair amount of time to unfold, the downtrend remains in effect. Bounces should be sold at proper resistance levels preferably with confirmation that price has begun to reverse back lower in the short term.
If readers are interested, SquishTrade may post a shorter-term view that includes key resistance levels where the current bear rally may find strong resistance. These levels could be watched for reversals where price in the short-term rejoins the larger-degree downtrend.
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Author's Comments:
(1) Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate in the comment section. Shared charts are especially helpful to support any opposing or alternative view.
(2) This technical-analysis view does not constitute a trade recommendation or trade setup. Instead, it attempts to offer technical commentary that describes and analyzes price levels, trends, price action, or the broader technical environment as of the publication date. Technical-analysis commentary does not equate to trade setups or recommendations. Within a given price environment, traders bear responsibility for their own trading strategy, risk tolerance, and time frame, and for any due diligence associated with such trades.
(3) This technical-analysis viewpoint could change at a moment's notice, e.g., when price violates a key level of invalidation for a particular view. Further, proper risk-management techniques are vital to trading success.
(4) To the extent countertrend price moves are discussed, consider that countertrend or mean-reversion trading, e.g., trading a rally in a bear market, remains higher risk and lower probability even for the most experienced traders and investors.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified / licensed financial adviser or other financial or investment professional before entering any trade, investment or other transaction.
SPX Approaches a Confluence of Resistance Levels at 3850Primary Chart: Fibonacci Levels, Symmetrical Triangle Broken in September 2021, Anchored VWAP , and Downtrend Line
On September 21, 2022, SPX's had a breakout to the downside from a multi-month symmetrical triangle pattern. This pattern was discussed in a post prior to the breakout.
But when price breaks out of technical patterns, price sometimes tends to backtest or retrace back to the very same pattern that led to the breakout. In other words, the breakout occurs with a directional move in earnest only to reverse and retrace back to the pattern or level that price had broken. In the case of SPX's symmetrical triangle, it appears that a retracement to backtest this triangle's trendline can reasonably be expected. The powerful bounce of the YTD low at 3584.13 appears to have begun with two consecutive rally days with very strong breadth readings.
Furthermore, important technical levels can often draw price in like a magnet when price starts moving in their vicinity. A confluence of important levels arise in the area around 3850 SPX. Such levels are shown on the Primary Chart above. They include the following:
VWAP anchored to the lows of the pandemic crash in March 2020, which currently is at SPX 3856.64
Fibonacci retracement levels at SPX 3851, 3867, 3899, and if price can exceed those levels on a close, 3914.85
major resistance zone that has served as both support and resistance since June 2022 at SPX 3885 to 3920
upward trendline from June 2022 lows that also served as the lower trendline of a symmetrical triangle with price at 3830-3860 over the next 5-8 trading days
downward trendline from August 16, 2022, swing highs that run right through this confluence zone in the next week or so
34-day EMA at 3870 as of October 4, 2022, which is shown on Supplementary Chart D at the end of this post
A few other Fibonacci levels are shown on the intraday price chart below. They show similar levels to the levels discussed above, with a lower level at SPX 3819.57, which is the 1.272 Fibonacci projection of the first leg of the rally off the September 30, 2022, low, as projected from the start of the second leg of the same rally. This chart also another level at 3859.09, which is the 1.618 Fibonacci projection using the same starting and ending points as the 1.272 projection.
Supplementary Chart A: Fibonacci Projections from within Current Rally Off Lows
Price may pull back a bit before reaching these targets to consolidate the impressive gains from the past two days. An intraday divergence has already appeared on the 30-minute RSI for SPX. This divergence could easily be erased. Or a further divergences could appear as price pushes a bit higher before consolidating some of the past week's gains.
Supplementary Chart B: RSI for SPX on 30-Minute Chart
What happens next? Breadth had gotten extremely poor at the lows last month. The percentage of SPX stocks below their 20-day moving average was at similar lows to June 2022 and March 2020. The blue rectangle on the chart below shows how only three negative breadth readings have approached that area in the past 2.5 years: March 2020 lows, June 2022 lows, and September 2022 lows. See Supplementary Chart C.
Supplementary Chart C: Extremely Negative Breadth Readings from September 2022 Compared to June 2022 and March 2022 Breadth Readings
However, the trend in equity indices remains downward, and until the structure changes, the odds favor trend continuation over trend reversal. But a continuation of the rally makes sense at least in the short term. And the levels discussed can be watched, and as each level is reclaimed, the next level or set of levels can be evaluated.
Lastly, the 34-day EMA was discussed earlier in this post but was not shown on the Primary Chart. It appears below. As each day passes, this value could change to some extent.
Supplementary Chart D: 34-Day EMA at SPX 3870 as of October 4, 2022
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Author's Comments:
(1) Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate in the comment section. Shared charts are especially helpful to support any opposing or alternative view.
(2) This technical-analysis view does not constitute a trade recommendation or trade setup. Instead, it attempts to offer technical commentary that describes and analyzes price levels, trends, price action, or the broader technical environment as of the publication date. Technical-analysis commentary does not equate to trade setups or recommendations. Within a given price environment, traders bear responsibility for their own trading strategy, risk tolerance, and time frame, and for any due diligence associated with such trades.
(3) This technical-analysis viewpoint could change at a moment's notice, e.g., when price violates a key level of invalidation for a particular view. Further, proper risk-management techniques are vital to trading success.
(4) To the extent countertrend price moves are discussed, consider that countertrend or mean-reversion trading, e.g., trading a rally in a bear market, remains higher risk and lower probability even for the most experienced traders and investors.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified / licensed financial adviser or other financial or investment professional before entering any trade, investment or other transaction.
BTC Likely to Test June 2022 Lows SoonToday saw volatile, whipsawing price action in both cryptos and equity indices. BTC was no exception. As discussed in an article on September 19, 2022 at the start of this week (see link in the Primary Chart above), the US Federal Reserve Open Market Committee (FOMC) has held their September 2022 meeting on Tuesday and Wednesday this week. This meeting concluded today with a presser at 2:00 p.m. EST in the US. The hawkish monetary policy that has been fostered by the FOMC has put pressure on risk assets for much of this year. Federal Reserve Chair Jerome Powell clearly stated that monetary policy would continue to remain restrictive and tight for quite some time until inflation comes down toward its 2% target.
The Federal Reserve, along with other central banks around the globe, have been attempting to tackle sticky inflation. Inflation has been the number one problem in developed countries from a macroeconomic perspective, and it has been running at high levels not seen in decades. Though some argue that inflation may have peaked, and there are good arguments for this conclusion, it remains sticky and well above central banks' targets, which in the US is 2%.
The Primary Chart above links to other recent posts on BTC where key levels are discussed in more detail than in this post, especially the downtrend line and key Fibonacci levels.
After the FOMC presser, it appears that BTC is heading quickly to test June 2022 lows. BTC failed in its breakout attempts over the summer as to key levels. This is discussed in the prior posts linked in the Primary Chart above.
In the most recent post regarding levels to watch this week, .786 retracement of the summer rally was identified as a key one to watch. Price chopped around this level with two failed breakout attempts. These failed breakouts are similar to the failed breakouts as to other key Fibonacci levels as well discussed in the linked recent posts.
Supplementary Chart A: Failed Breakouts This Week over .786 Retracement Level
Given these failed breakouts, combined with the failure on September 13, 2022, at the major downtrend line resistance, BTC is likely headed to test June 2022 lows soon. First it must violate the lows from earlier this week at 18,271. A successful violation of this level will lead directly to June 2022 lows. After that, some of the Fibonacci Channel lines can be considered as subsequent targets.
Please also see the update by @Tradersweekly posted in the link below, which covers volume and some additional resistance levels based on multi-year price peaks. This article is highly recommended for a complementary but slightly different perspective on BTCUSD.
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Please note that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for this week. Also note that countertrend trading, e.g., trading a rally in a bear market, is tricky and challenging even for the most experienced traders. Countertrend trades are lower probability trades as well.
This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success.
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
NDX / QQQ Resumes Downtrend But Approaches Multi-Year SupportPrimary Chart: Several NDX / QQQ Trendlines and Multi-Year Support Zone at $254-$267
SUMMARY :
The downtrend has resumed since the consolidation pause in the days leading up to the FOMC presser on September 21, 2022.
Shorter-term targets include June lows at $269-$270, and if June lows are violated, the next target range is $254-$267 on QQQ, which equates to $10,720 to $11,000 on NDX. This target range is supported by Fibonacci projections as well as a multi-year zone of support, which could lead to an interim (temporary) low.
Importantly, watch for any undercut of the June 2022 low, and watch for a failed breakout below that level of support—which could lead to another countertrend rally or a period of sideways chop.
The bear rally in July and August 2022 had even the bears scratching their heads with their tired paws—"tired" because this year has been anything but an easy ride for bears and bulls alike. In July and August 2022, AAII sentiment even showed some bears took off their furry suit and put on some horns, as the number of bears dropped as price continued to rip higher. But the more steadfast and patient bears were rewarded yet again after the August 16, 2022 peak. In the end, the entire summer's rally was a mirage, a rally that drew in many thinking the worst was finished. This is common in bear markets, with bear rallies in the Nasdaq in 2002 ripping 30-60% higher over weeks, and sometimes months.
But now, the Nasdaq 100 NASDAQ:NDX NASDAQ:QQQ has resumed its downtrend decisively since the August 16, 2022, swing high. Every time a multi-day rally has appeared, sellers have pounced to flood the market with supply, sending the NDX / QQQ back on its downward path.
The next target from a purely technical perspective appears to be the multi-year zone of support near $254/$255 up to $267 on QQQ, which equates to approximately $10,720 to $11,000 on NDX. This is not far below where price traded today. The Nasdaq 100 closed at 11,501.66 / QQQ at $280.07.
This zone of support is also supported by Fibonacci analysis. Fibonacci projections show conservative targets for this leg of the decline around $255.68-$267.53 (Supplementary Chart A), which closely align with the multi-year zone of support (shown on the Primary Chart).
Supplementary Chart A: Fibonacci Analysis with Projections Based on Structure of the Current Decline from August 2022 Highs
Supplementary Chart B: Fibonacci Channel Showing Potential Target Assuming Bear Market Continues into Next Year
The Fibonacci Channel is plotted on a logarithmic chart going back 22 years to 2000 approximately, and the lows in the 2000-2002 bear market. Coincidentally, the $228 price level at the 2.00 line coincides with the longer-term trendline support at about $225-$230 early next year —shown on the Primary Chart as the upward trendline, the lowest trendline on the chart.
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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
