Leaving Breadcrumbs For A Swing Or Setting A Trap?In my previous idea, I explained why I think the price could rise to the $580s and just wanted to provide a brief update on what I’m watching for this week. The market has felt lethargic recently despite rising roughly 8.25% over the last five sessions. The days of fretting over incremental movements feels like a distant memory. Fortunately, major data releases and large cap earnings should energize the market. While “C” waves are not required to meet specific sub-wave retracements, and can go straight to their targets without a significant pullback, we should still be prepared for the possibility of being faced with market whiplash. Taking all of this into account, I think there could be a pullback - especially after noticing an important clue right in front of me.
AMEX:SPY has been rising higher for the last five sessions in a jerky uptrend from last week’s lows and is close to filling a gap/imbalance at the $555 level on the daily chart. There is also a gap from $529-$534, however the price is much closer to filling the upper gap.
Other things I’m taking note of on the daily chart are the declining volume and a MA cross confirmation. The moving averages I’m using here are HMA (13; pink) EMA (34; yellow) and SMA (200; green), and I have found the Hull Moving Average crossing the Exponential Moving Average to be a fairly reliable indicator of a reversal. HMA will cross up on Tuesday if the price stays above the EMA.
For a different perspective, the 1000R ($10) chart shows the price action a little more smoothly. I noticed that for the month of April, each time the price swung lower, it did so by around $35. If it is assumed that this pattern continues for one more swing lower in what would be wave (b) of C, the next question would be: to which retracement level it would go?
There are a lot of people on the boards who think the price will move lower on Tuesday. If the price were to fall from around Monday’s close of $550, a $35 drop would take the price back to around $515, which would result in an approximately 80% retracement of wave (a). There is nothing wrong with this, and the price could reverse and extend to $580 from there, however I think such a deep retracement into wave (a) is the less likely scenario since the goal of this larger corrective wave is to keep the momentum moving higher to sell before the market tanks. I still charted it above to show what that would look like.
Alternatively, I am expecting SPY to move higher on Tuesday and pull back Wednesday and Thursday to continue printing what appears to be clean and proportional movements here in the first major corrective wave of the bear market.
The week ahead will have several events that could determine the market’s direction. The most important news should come from GDP and Core PCE data being released before the open on Wednesday. Regardless of how the market reacts, we can assume with relative confidence that the news will contribute to a large movement in price. Since I’m suggesting a $35 move down will happen at some point, I am anticipating Wednesday will start this movement.
Above the $555 gap there is an order block that the price should be gravitating towards. This would be an ideal area to absorb buy orders before SPY gets sent down. Taking an educated guess, $565 could be a key level that marks the end of wave (a). A $35 reduction from there would see the price retrace 61.8% (0.382 level on the chart) to $530. Since there is another gap around this level, it should be a logical area for the price to move next before beginning its final rise to around $580.
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This idea makes more assumptions than my last one, so please trust your own instincts and form your own opinions. The market can be unpredictable, so patterns can fail at any time. This is why it is important to stay vigilant.
With that being said, I expect Tuesday to be another low volume day that could take the price in any direction; including sideways. Since Wednesday’s data should be a major driving force for price activity this week, it is important to assess which level the market is targeting just before the news comes out. We’ll see what happens, but I think institutions are going to look to prolong this corrective wave while they still can and offload shares at a good price, because the next time this sells off it will go much lower.
I appreciate all of the feedback I received on my last post, and if you enjoyed this one I’d love to know what you think. Good luck to all.
