SPCFD:SPX   S&P 500 Index
Almost.

Today we may have seen the bottom start to fall out in key support levels of the names and the index that got us to the highs in general. Meaning we could be in store for the C leg after all.

But this comes with a caveat.

The the past 2-3 weeks have been uncharacteristic for the market basically over the course of the past year or two. We've seen a straight up evaporation of the extreme buy the dip mentality that was prevalent on the run up to the highs pre COVID, and the insane run we've had since the March bottoms.

So i'm cautious in my analysis and my trading at this point. And that could be just a product of the market conditioning me to not expect more than a few down days in a row before a return to the behavior that has been the markets identity the past year or two: Buy The Dip.

We just closed out our third red week in a row. The last time this happened was the COVID drop . And obviously this is different as the entire market fell out in late February. And it's different in the sense that this is turning into that protracted downtrend that i think we're seeing.

So part of me, the one that's been conditioned, feels like the selling is overdone and we've gone a little too far in our bearishness. But the other part of me knows that that type of thinking is dangerous to a trader. We have to go by the evidence in front of us and make our best decisions based not only on that, but also our gut feelings. It really is a balancing act.

This entire move back down has been met with resistance. Like noble resistance. But level after level has started to give way, and the buy the dip crew really might be in a lot of trouble in the coming week or two. We legitimately might be seeing a return to the mean right now. And worse, possibly the start of the actual bear market.


This isn't your standard rug pull, product of Five Guys, LLC, quick 10% down move to shakeout the weak hands. This is legitimate a change of market behavior and sentiment. And what's been incredibly intriguing to watch is this literal war between the bears and the bulls these past two weeks. But the bulls are losing on their most important front - tech.


This is not a good look for the broader market and what i'm starting to fear is that the names that relatively buoyed us this week are going to start rolling over as well as we start to see the end of quarter rebalancing and "rotation" start to fade out. The sectors that kept DJI higher and also the SPX by some measure this week were energy, healthcare, and to a point small caps. Unfortunately, small caps have a tendency to get run over at any given moment and AAPL at its top had a larger market cap than the entire Russell 2000, so. GG IWM .


So what's a return to the mean? Well, take a look at the European stocks. And take a look at IWM , and XLF's weekly chart. That is the mean currently in my opinion. But this is a moving target. Earnings were relatively a lot better this season. But, that's also because expectations are so low. This coming season those expectations are still low, but a lot higher than they were expecting a further recovery from the COVID shock. And on top of that buybacks apparently have slowed to a 1.5 year low, which is not going to bode well for beats this coming earnings season (https://hedgopia.com/sp-500-buybacks-col...). Names like AAPL , AMZN , NFLX , and all the darlings will do fine I'm sure, and that will, in my opinion, start to put the brakes on this slide we're currently seeing the closer we get to their next earnings dates. But until then taking a look under the hood it is not pretty. The gamma squeeze in QQQ has done a full and complete 180 and we are now seeing a long squeeze to go along with it. The more selling we see the more selling it will spur more. Just how buying begets buying selling begets selling. Either by the buy the dip crew starting to get picked off via risk limits, stops, margin calls, or blow ups when price keeps falling. We haven't even started to see this yet and this would signal and add to that "finishing move" that I've been speaking of. The market has a funny way of working leverage out of the system. The weekly call buyers were the first casualty, and now that they worked through the first layer they're now almost done working their way through the second layer, people like us who are smart enough not to just gamble, but still are retail, and next is actual big money. The "just a healthy pullback" aggressive buyers at these levels that have been trying to fade every drop this entire move.


Now i'm saying this with the bull case not even being a fully lost cause just yet from where we closed today. We're barely below the lows on SPX , still hanging on by a thread so to speak and we're still seeing buyers come in the market thinking "it's worked every other time, why wouldn't it work this time?" and they might be right. And honestly, I wouldn't be surprised if they are. But this feels.. different. Literally the exact opposite of what we saw on the way up. Instead of buying, now it's selling. But, just like this past Monday we could wake up Monday morning to something crazy like a 50-100 point market gap up. I honestly don't know and i don't claim to know. Anyone who does is a liar. But it is evident that something is completely different when it comes to day to day price action and market behavior.


And again, we could just be stretching the rubber band in the southern direction and we're actually in for another shot at the highs in the near future. That's what the buyers are expecting. And on that note, I'm waiting for the sellers to exhaust themselves in names like AAPL , and in the broader tech space in general but just as the bulls seemingly have unlimited ammo the bears also have the unlimited ammo cheat code over on the tech front. And like I said the way the market is acting is not indicative of any other pullback I've ever traded the past few years. This is slow, consistent, steady, and measured selling. The fact that we have the put gamma squeeze is adding to that.


I'm just putting pen to paper with what I'm seeing and how I'm feeling. At any given moment I'm waiting for the "Jack in the box" moment where there's this ridiculous 2% 1 hour candle that just smokes anyone who had a short position. But the bulls haven't been able to muster anything like that. They're not giving up chart easy, but slowly and surely they're giving it up. NDX is now well below its 50 period and below a key support/the previous lows, SPX is now decisively below the 50 period and is not quite below the previous lows, but SPY is. DJI tested and closed above its 50 period today.


Well, what about IWM?? Well IWM is just barely above it's 100 and 200 period MA's. SPX is still 16% away from its 200 period MA at $2764. NDX is still 33% above it's weekly 200 at $7270. We closed today at $10937.. IWM is at its mean.


I honestly don't think we're going to see a return to the weekly 200 on SPX or NDX, at least not in this move. I'm not delusional. But just painting the picture for you.


I see the extreme lows for this move as $3000 for SPX and $9800 for NDX (the measured target for the ABC ). The bottom of the measured moved for SPX is around $3150. Today very well could have been a liquidity hunt, and we reverse from here. You can even make a case that we're just printing a big ass, massive, bullflag on the weekly. Which would be indicative of a move to somewhere over $4000 on SPX . But, i think the stars would have to align perfectly for us to get that. If we do follow through with selling early next week we will have a relief rally, and it'll most likely, hopefully, be impulsive and take us back to where we're at today. But until then make sure your boots are laced tight and your mouthguard is in because i think it could get pretty nasty here in the coming week or two.


This won't be without turbulence both ways. And there will be traps both ways. Hell, we could literally 180 on Monday as I alluded to and start making new highs by the end of next week. But I just don't see it as likely.


Alright, that's enough of my premonition'ing. Please do not take this as me being an alarmist or a doomer, but this is honestly what i see. I've been proved wrong countless times before in the market and i'm not all seeing, but just laying it out there.










At M1904trading.com we're doing daily, in depth market wide analysis with little to no bias as well as live updates throughout the day. Everything from the 5m to the monthly. Check it out for a 7 day free trial!

Comments

Great chart
Reply
Keep it up
Reply
Excellent discussion, much appreciated!
Reply
Very nice explanation.Nice work
Reply
Excellent work,sir.
Reply
Beautiful explanation
Reply
Surely this shift in the supreme court won't help either!
Reply
I feel exactly the same way!
Reply
Home Stock Screener Forex Screener Crypto Screener Economic Calendar How It Works Chart Features Pricing Refer a friend House Rules Help Center Website & Broker Solutions Widgets Charting Solutions Lightweight Charting Library Blog & News Twitter
Profile Profile Settings Account and Billing Referred friends Coins My Support Tickets Help Center Ideas Published Followers Following Private Messages Chat Sign Out