Relief led by a new "meme" stock

In the previous article on SPX, we highlighted how MACD was approaching the midpoint (on the daily time frame) and said that a bearish breakout below zero would likely coincide with the price dropping to the area between $4,250 and $4,350. On Friday, SPX temporarily dropped to this area and constituted a new low at $4,335.31 (following the peak in July 2023). Interestingly, that same day, there were news about China’s property giant Evergrande filing for bankruptcy in the USA, and later during the trading, U.S. indices rebounded. On Monday, the relief continued, with the tech sector posting the most significant gains (led by Nvidia, Tesla, etc.). Today, markets are slightly up again, and the main question is whether the selling is done. To get more clues about the answer to this question, we are paying close attention to RSI, Stochastic, and MACD on the daily chart. In addition, we continue to monitor the situation in the Chinese stock market, where there is still a lack of clarity on what regulators will do to stop the unraveling property crisis. To support a thesis about the short-term trend reversing back to bullish, we would like to see SPX holding above $4,400 for at least two consecutive closes. Furthermore, we would like to see Stochastic successfully continue to the upside, and RSI break the bearish structure (on the daily chart). Contrarily, to support a bearish thesis, we want to see MACD stay below the midpoint and Stochastic with RSI fail to reverse. Additionally, we do not want to see a crash in VIX because that would be bullish. We will update more thoughts on the situation with the emergence of new developments.

Illustration 1.01

Illustration 1.01 shows the daily chart of SPX and two simple moving averages. The yellow arrow indicates a looming bearish crossover between the 20-day SMA and the 50-day SMA; if the crossover is successful, it will bolster the bearish case for SPX in the short and medium term.

Illustration 1.02

Illustration 1.02 displays the daily chart of RSI. If RSI breaks above the resistance, it will be slightly bullish. In such a case, we will monitor the distance traveled by RSI after the breakout; the shorter the length, the higher chance of a fakeout.

Technical analysis gauge
Daily time frame = Bearish
Weekly time frame = Bullish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.

Please feel free to express your ideas and thoughts in the comment section.

DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.

Comment:

Big day today with NVIDIA reporting its earnings after the market close.