CMT Association's Market Insights features timely technical analysis of current global markets by veteran CMT charterholders. Each post appears on www.tradingview.com/u/CMT_Association/ in an effort to explain process, tools, and the responsible practice of technical analysis. Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
Trend Analysis – Chart Patterns – Technical Indicators
Early 2022 was characterized by a sharp 27% decline in SPX , 38% in QQQ and 33% in IWM (Russ 2000) prices. Since finding support in October, equities have corrected higher. Most indices have now retraced over 50% of their initial declines. For instance SPX has moved nearly 20% higher from its low and the NYSE composite 22% off its lows.
In October price found support at the uptrend that has defined the bull market since the march 2009 bear market low (see the Big Four Macro Equity piece from last week). As would be expected that strong support has produced a significant correction.
More recently SPX has moved modestly above the downtrend that define last years bear market, turning the immediate trend neutral.
The question becomes: Is this corrective or is it the beginning of a nascent bull market? My macro view (discussed in last weeks post), helps to inform my view that the rally from the October low is corrective. As a result, I am actively monitoring for bearish setups and structures to sell against.
The pattern from the October low is mostly consistent with corrective rather than impulsive activity. In my view, the move high has been generally labored and gradual and has allowed the market to remove any vestige of the oversold that had accrued during the decline.
Over the last few weeks SPX has moved higher into a decent confluence of chart and Fibonacci resistance as defined by the December high, the 50% retracement of the decline, and a significant internal trend line (not shown for the sake of chart clarity).
If the market does manage to move higher from this zone, there is a stronger/more attractive confluence in the 4400 zone that is defined by the August pivot , a channel top, and Fibonacci objectives.
Buttressing this view is the idea that the broad market has risen to test the breakdown point. For the NYSE Composite this is a very significant juncture. The behaviors that develop from this point should offer a tremendous amount of visibility in terms of the coming three to four months.
There is also a phenomenon known as the midway correction. Midway corrections often occur about halfway through bull and bear markets. Last weeks macro piece made the point that the current bear had covered much less ground than prior bear markets that had occurred post Greenspan put.
Finally, the daily momentum has rolled over and the weekly oversold has been neutralized. If the market does turn lower in coming weeks there shouldn’t be much standing in its way. A show of weakness from this position would be quite bearish .
Bottom Line: I am actively monitoring for bearish behaviors and set ups.
And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum.
Stewart Taylor, CMT
Chartered Market Technician
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.