S&P futures - the bulls are not out of the woods yet!
There was a significant shift in momentum last monday as the Evergrande debacle hit the stock markets globally. The S&P500 broke its long term up-trendline and also the 20 and 50 DMA, which have acted as support during this entire bull-run. Everytime we have touched the 50 DMA especially, it has been a great buying opportunity. So what has changed?
First, a break of a major trendline such as this one usually is followed by a back-test of the break. I.e. what we are seeing now. It will be extremely important for the bulls to reclaim the trendline and close above it to prove that this break was just another buying opportunity.
Conversely, we are now meeting resistance at the 20-DMA. Volume also seem to be dropping off as we move back up. Both these factors are bearish.
I will, however, give the bulls the benefit of the doubt if they manage to close above 4480 level. The daily trend remains bearish (lower highs, lower lows).
To confirm the bearish sentiment, a new daily lower low has to be set.
If the bearish case proves to be true, this could be the B leg in an ABC type correction, in which case, We will retrace the gains from the last 4-5 days. This remains to be seen.
Conclusion: currently this seems just like it is setting up for a bull-trap and another move lower, as we have not broken back above the trendline, or the 20 DMA.
Should we do both, I expect more buying pressure to come in, but conversely, new shorts are probably being opened at these levels.
Be careful!
First, a break of a major trendline such as this one usually is followed by a back-test of the break. I.e. what we are seeing now. It will be extremely important for the bulls to reclaim the trendline and close above it to prove that this break was just another buying opportunity.
Conversely, we are now meeting resistance at the 20-DMA. Volume also seem to be dropping off as we move back up. Both these factors are bearish.
I will, however, give the bulls the benefit of the doubt if they manage to close above 4480 level. The daily trend remains bearish (lower highs, lower lows).
To confirm the bearish sentiment, a new daily lower low has to be set.
If the bearish case proves to be true, this could be the B leg in an ABC type correction, in which case, We will retrace the gains from the last 4-5 days. This remains to be seen.
Conclusion: currently this seems just like it is setting up for a bull-trap and another move lower, as we have not broken back above the trendline, or the 20 DMA.
Should we do both, I expect more buying pressure to come in, but conversely, new shorts are probably being opened at these levels.
Be careful!
Comment:
We got the drop exactly as predicted. I would be very careful buying and dip long here. I expect bounces to be sold and lower prices.
Be tolerant with others and strict with yourself.
- Marcus Aurelius
- Marcus Aurelius