SPX's Bear Rally May Tag Resistance Zone at 4100-4143
Primary Chart: Down Trendline and Anchored VWAP from All-Time Highs, Fibonacci Retracements and Extensions
Summary of Key Points:
1. SPX remains in a countertrend rally (an uptrend on shorter time frames) from the October 13, 2022 lows. See the parallel channel on the Primary Chart. The post-FOMC selloff found support right at the base of this channel.
2. A pullback and consolidation should be expected, though it's not necessarily a given. Though prices moved in almost a straight line late last week, that is not the norm and even with that nearly straight line, prices never move in a straight line on higher time frames. If a pullback / consolidation occurs, it would be in the blue box area shown on the Primary Chart.
3. SquishTrade will only consider targets above 4000 if SPX can successfully reclaim 4000 with a daily close above, i.e., 4000 works as as a condition precedent to 4100-4143.
4. The truth is that no one can see the future and predict with consistency and accuracy exactly what happens next. Technical analysis is a tool used to evaluate probabilities, not certainties.
5. Bear rallies, in the mean time, should be respected. After all, how many times have bears (including SquishTrade) had their heads handed to them on a shiny platter this year? They go higher than anyone expects. And they tend to turn back lower to resume the bear market just when everyone starts thinking the lows are in and a new uptrend at the primary degree has begun.
SPX's bear rally may continue higher, with pullbacks / consolidations of course, to reach 4100-4143. Why is it still being called a bear rally? Some may wonder whether the lows are in after last week's powerful rally on incredibly strong breadth on November 10, 2022, with follow through on Friday, November 11, 2022. Social media is filled with calls for markets to move back to all-time highs given markets uncanny ability to "sniff out" the final stages of inflation and a return to normalcy with a Fed pivot not long afterwards. Sound too good to be true? Maybe it is.
The truth is that no one can see the future and predict with consistency and accuracy exactly what happens next. Technical analysis is a tool used to evaluate probabilities, not certainties. The probabilities suggest the market heads lower at some point once the extreme emotions surrounding the "relief rally" (likely fueled by a nice mix of FOMO, algos and short-covering) have faded and price exhausts to the upside. Bear rallies, in the mean time, should be respected. After all, how many times have bears (including SquishTrade) had their heads handed to them on a shiny platter this year? They go higher than anyone expects. And they tend to turn back lower to resume the bear market just when everyone starts thinking the lows are in and a new uptrend at the primary degree has begun.
SquishTrade's analysis suggests the bear rally should continue at least another week, perhaps two. Sure, a pullback is likely after the run up last week to consolidate those excessive gains, but the countertrend rally is likely to continue. Please interpret this analysis correctly—SquishTrade is labeling this a countertrend rally until the larger trend structure is definitively broken. SquishTrade is not long-term bullish or calling for a new uptrend at the primary degree. Comments asking why the view has flipped are misplaced: the long-term and even intermediate-term view has not flipped as every downtrend by definition includes both highs and lows in an ebb and flow progressing downward over time.
At this stage, the downtrend at the primary degree remains intact. Note the downward trendline in dark blue from the all-time highs. Note the VWAP anchored to the all-time highs in January 2022. These represent actual price data, not opinions. The structure remains down at the primary degree no matter what macro chatter is out there. Tom Lee, a sort of permabull who correctly called the 2-year rally to SPX 4800 off the Covid lows is still calling for SPX 5100 by year end, and thinks that this rally leg can reach 4400. Other macro and technical analysts have said the lows are in and SPX is rallying having sensed the final stages of inflation. Of course, for every bull, there is an equally persuasive bear. SquishTrade believes all that information is contained in the technicals, so why argue the data when it may not matter in the end? Markets will do whatever they want. If markets break the downtrend, then the bulls are right. If they continue the downtrend, the bears are right. Squish remains a bear until the technicals on the larger timeframes can change.
Consider two supplementary charts. First is the key anchored VWAPs from major pivots in this bear market. Note the VWAPs from the mid-August 2022 high, the mid-June 2022 low, the mid-October 2022 low. Those VWAPs are converging and beginning to rise, suggesting a strong support zone from 3800-$3879. If this support breaks along with the parallel channel support (the up TL from October 13, 2022), then all bets are off. If this support holds, then watch for a move to the targets identified above.
Supplementary Chart A: Anchored VWAPs
Supplementary Chart B: Fibonacci Time and Price Analysis
Note the confluence of key levels in the Fibonacci price analysis around 4100 and just above that level. These also coincide with the all-time high anchored VWAP currently at 4114.25 and the down trendline from the all-time highs as well, at least where that trendline appears in the next couple weeks.
As to the Fibonacci time analysis, consider that since the .50 Fibonacci time level didn't produce a meaningful turn lower, perhaps the .618 Fib level will. Full disclosure: the time analysis is the most speculative and unreliable portion of this post, so if it works out well, that would come as a surprise to ST.
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Summary of Key Points:
1. SPX remains in a countertrend rally (an uptrend on shorter time frames) from the October 13, 2022 lows. See the parallel channel on the Primary Chart. The post-FOMC selloff found support right at the base of this channel.
2. A pullback and consolidation should be expected, though it's not necessarily a given. Though prices moved in almost a straight line late last week, that is not the norm and even with that nearly straight line, prices never move in a straight line on higher time frames. If a pullback / consolidation occurs, it would be in the blue box area shown on the Primary Chart.
3. SquishTrade will only consider targets above 4000 if SPX can successfully reclaim 4000 with a daily close above, i.e., 4000 works as as a condition precedent to 4100-4143.
4. The truth is that no one can see the future and predict with consistency and accuracy exactly what happens next. Technical analysis is a tool used to evaluate probabilities, not certainties.
5. Bear rallies, in the mean time, should be respected. After all, how many times have bears (including SquishTrade) had their heads handed to them on a shiny platter this year? They go higher than anyone expects. And they tend to turn back lower to resume the bear market just when everyone starts thinking the lows are in and a new uptrend at the primary degree has begun.
SPX's bear rally may continue higher, with pullbacks / consolidations of course, to reach 4100-4143. Why is it still being called a bear rally? Some may wonder whether the lows are in after last week's powerful rally on incredibly strong breadth on November 10, 2022, with follow through on Friday, November 11, 2022. Social media is filled with calls for markets to move back to all-time highs given markets uncanny ability to "sniff out" the final stages of inflation and a return to normalcy with a Fed pivot not long afterwards. Sound too good to be true? Maybe it is.
The truth is that no one can see the future and predict with consistency and accuracy exactly what happens next. Technical analysis is a tool used to evaluate probabilities, not certainties. The probabilities suggest the market heads lower at some point once the extreme emotions surrounding the "relief rally" (likely fueled by a nice mix of FOMO, algos and short-covering) have faded and price exhausts to the upside. Bear rallies, in the mean time, should be respected. After all, how many times have bears (including SquishTrade) had their heads handed to them on a shiny platter this year? They go higher than anyone expects. And they tend to turn back lower to resume the bear market just when everyone starts thinking the lows are in and a new uptrend at the primary degree has begun.
SquishTrade's analysis suggests the bear rally should continue at least another week, perhaps two. Sure, a pullback is likely after the run up last week to consolidate those excessive gains, but the countertrend rally is likely to continue. Please interpret this analysis correctly—SquishTrade is labeling this a countertrend rally until the larger trend structure is definitively broken. SquishTrade is not long-term bullish or calling for a new uptrend at the primary degree. Comments asking why the view has flipped are misplaced: the long-term and even intermediate-term view has not flipped as every downtrend by definition includes both highs and lows in an ebb and flow progressing downward over time.
At this stage, the downtrend at the primary degree remains intact. Note the downward trendline in dark blue from the all-time highs. Note the VWAP anchored to the all-time highs in January 2022. These represent actual price data, not opinions. The structure remains down at the primary degree no matter what macro chatter is out there. Tom Lee, a sort of permabull who correctly called the 2-year rally to SPX 4800 off the Covid lows is still calling for SPX 5100 by year end, and thinks that this rally leg can reach 4400. Other macro and technical analysts have said the lows are in and SPX is rallying having sensed the final stages of inflation. Of course, for every bull, there is an equally persuasive bear. SquishTrade believes all that information is contained in the technicals, so why argue the data when it may not matter in the end? Markets will do whatever they want. If markets break the downtrend, then the bulls are right. If they continue the downtrend, the bears are right. Squish remains a bear until the technicals on the larger timeframes can change.
Consider two supplementary charts. First is the key anchored VWAPs from major pivots in this bear market. Note the VWAPs from the mid-August 2022 high, the mid-June 2022 low, the mid-October 2022 low. Those VWAPs are converging and beginning to rise, suggesting a strong support zone from 3800-$3879. If this support breaks along with the parallel channel support (the up TL from October 13, 2022), then all bets are off. If this support holds, then watch for a move to the targets identified above.
Supplementary Chart A: Anchored VWAPs
Supplementary Chart B: Fibonacci Time and Price Analysis
Note the confluence of key levels in the Fibonacci price analysis around 4100 and just above that level. These also coincide with the all-time high anchored VWAP currently at 4114.25 and the down trendline from the all-time highs as well, at least where that trendline appears in the next couple weeks.
As to the Fibonacci time analysis, consider that since the .50 Fibonacci time level didn't produce a meaningful turn lower, perhaps the .618 Fib level will. Full disclosure: the time analysis is the most speculative and unreliable portion of this post, so if it works out well, that would come as a surprise to ST.
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Comment:
A gap fill area also lies at 4040-4083 SPX, which is just below the resistance zone discussed of 4100-4143.
Comment:
Bear markets have not bottomed before a recession begins. Bear markets have not bottomed with central banks still tightening policy. Even if the rate hikes by the US Fed slow or decrease in size, they are still rate *hikes,* not rate cuts. Rate hikes, even if less drastic, reflect rising rates, and rising rates cannot be called a pivot. Pivot occurs when the Fed starts cutting rates. This is why the bear market is not over even if SPX rallies to 4300.
Trade active:
If SPX can reclaim 4000, then the 4100 - 4143 zone is still in play. This is where the down TL resistance is located. This target zone is also filled with Fibonacci resistance levels, a long-term anchored VWAP from the all-time high (at 4112 as of 11/16), and a gap fill area at 4050-4080.
To reiterate, only consider targets above 4000 if SPX can successfully reclaim 4000 with an 1-hour, 2-hour, or daily close above, i.e., 4000 works as as a condition precedent to target zone of 4100-4143.
Price may likely fail at this TL.
Not a great R/R trade idea for a trade to the upside. Why chase the what could be the final leg of a move up into the most concentrated area of resistance?
Wait for the breakout where the trendlines converge forming a sort of triangle pattern:
To reiterate, only consider targets above 4000 if SPX can successfully reclaim 4000 with an 1-hour, 2-hour, or daily close above, i.e., 4000 works as as a condition precedent to target zone of 4100-4143.
Price may likely fail at this TL.
Not a great R/R trade idea for a trade to the upside. Why chase the what could be the final leg of a move up into the most concentrated area of resistance?
Wait for the breakout where the trendlines converge forming a sort of triangle pattern:
Comment:
At a minimum, the gap-fill area around 4060-4080 should get tagged within the next few days with SPX hovering so closely nearby.
Comment:
SPX is wrestling with a short-term down trendline. We will see if it breaks to upside for a final push higher into the major downward TL from all-time highs.
Comment:
After finding support at the lower boundary of its upward parallel channel, SPX has pushed higher after Fed Chair Powell's speech today at the Brookings Institution event. Many were anticipating a bearish reaction, and the market was devious as it has been much of the year, spiking higher toward the 4100 target and downward TL above.
As a side note, not much has changed based on Fed Chair Powell's speech today. Rate hikes will be slower (smaller) in December 2022, but they are still happening, i.e., rates are still hiking. There has been no pivot--rates are NOT being cut. But perhaps a market desperate for good news views this as a "redefined pivot," meaning that when the Fed's rate hikes get just 25bps smaller, then a pivot has occurred—that sounds ridiculous, right? But can't fight the markets. Bears will have to wait for another catalyst, maybe it's a technical one at the downward TL or Fibonacci 1.00 extension around 4100 SPX
As a side note, not much has changed based on Fed Chair Powell's speech today. Rate hikes will be slower (smaller) in December 2022, but they are still happening, i.e., rates are still hiking. There has been no pivot--rates are NOT being cut. But perhaps a market desperate for good news views this as a "redefined pivot," meaning that when the Fed's rate hikes get just 25bps smaller, then a pivot has occurred—that sounds ridiculous, right? But can't fight the markets. Bears will have to wait for another catalyst, maybe it's a technical one at the downward TL or Fibonacci 1.00 extension around 4100 SPX
Comment:
SPX just exceeded its 200-day MA. This happened during the bear rally in March 2022 but it didn't last. The more relevant level is probably the downward TL at 4080-4100 discussed in the original post above. Let's evaluate how price responds to that level over the coming days.
Comment:
The gap fill area identified a couple weeks ago at 4040-4100 is being filled currently.
Comment:
One more chart / data point: Volume Profile resistance significant right in the same area as the down TL and the Fibonacci targets 4118-4146/4155 SPX.
Trade closed: target reached
SquishTrade
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