Welcome to the month of October, we had a very nasty month of September and many will be wondering if there will be a rebound in the month of October. Follow me daily as I use technical analysis to help you understand the movements of the stock market.
Well, in just a short period of time the stock market seem to have recovered from the nasty losses it made some weeks ago. The SPX above have already broken out of a downtrend line. It can be said that the reverse head and shoulders pattern have also worked.
The good thing is it has also traded back above the 20 MA and 50 MA. Now we just want to see the 20 MA cross back above the 50 MA and this will be good for the stock market.
Sometime ago I told you that the smart money were already in. When the public is most pessimistic this is where the professionals will come in to scoop up things in the market. Truly, the stock market is one of the greatest wealth generating and wealth transfer machine in the world.
I have highlighted a possible new area of support in the chart above. That will be the green area. If SPX manages to stay above this level then we could be making new all time highs soon.
The tech sector seems to agree that a new high in the stock market can happen. XLK itself formed a bullish reverse head and shoulders. If you can see, it also formed an ascending triangle to mark the bottom. XLK also broke a downtrend line and went back above the 20 MA and 50 MA.
If there could be a bullish cross where the 20 MA crosses back above the 50 MA, then we could really see a big rally in techs. If techs rally then this will be good for the entire stock market.
The last time the XLK had a bullish cross, it had a really really nice run up that propelled the XLK higher from June to September. Perhaps this time history might repeat itself.
Tesla is about to report earnings tomorrow. It is currently in a very strong uptrend and I think the long grinding up has already absorbed whatever supply or resistance that is on the left.
If you take a look at TSLA's moving average, the 20 MA is above the 50 MA and both of them are above the rising 200 MA. All three are rising and this combination is a very bullish combination for the stock.
Since the stock is in an uptrend, it is possible for it to make new highs. If the earnings are good tomorrow it will lift the stock and this will in turn help the stock market to move higher. Since TSLA is a component of the major indexes then a rising Tesla is good for the markets.
Good day and its another brand new week for us to make money in the stock market.
So far so good. I like the development in the SPY. It has broken above a downtrend line and also broken above the 50 day moving average. There might be correction today but if the SPY stays above the 50 MA then we are still on the way to move higher.
If on the other hand it corrects more, then we want to see it stay above the downtrend line. Corrections usually happen after some nice run up but if the market does not drop that much then we know that this week will probably be another nice move up. I am also alright with some nice sideways consolidation.
Just a rest before moving higher.
The above shows the 60 min chart of the QQQ. The green area is the top of an ascending triangle and this is a support area for the QQQ. As long as QQQ stays above this area, then it is very likely that the markets will continue to move up these next few days.
You should also take a look at the lower uptrend line. We want to see QQQ stay above this uptrend line. If QQQ breaks below it then there could be some nasty correction.
So far everything is still good and we also have a 60 min bullish cross. Hopefully this will help to propel it higher.
One thing I want to point to you is the breakout higher in Consumer Discretionaries. The XLY broke into new highs and also broke above an ascending triangle type pattern. The top of the pattern will be a support area.
You can do the same ascending triangle analysis on XLY as well. Watch the lower uptrend line as well. XLY shows that people are confident enough to spend more money buying things they don't really need. This is good for the economy and since it is breaking into new highs it is some good news for the stock market.
The smart money is pouring in if the data are correct. From a chart perspective, we can see that it is trying to form a reverse head and shoulders. This is a bullish reversal pattern with a possible target. And if the SPX breaks above the downtrend line there is a high possibility that the stock market will rise.
Of course not all reverse head and shoulders work. Which in this case, if SPX drops below the head of the pattern, then it is possible for SPX to go lower and hit the rising 200 MA.
I think the break above the downtrend line will be very good for the markets. We are entering a period where there could be a possible run up to the end of the year. Seasonally, the stock market tends to go up around October to December. What one can do is to buy the breakout above the downtrend line and have a stop loss below the head of the head and shoulders.
Or better, you can start to look for bullish setup in stocks which will most certainly go up more than the major indices. Remember we are trading the odds. There are no certainties but there are good probabilities.
The declining 20 MA in the SPX did its job as a resistance and thus the SPX fell. Whether that is a bad thing or not is still open to debate because at the moment what I am seeing is a probable potential reverse head and shoulders in the SPX.
That my friends is a bullish reversal pattern. In addition to the fact that there is a downtrend line for the SPX to breakout off, then this could setup to be a nice bullish move. Well that is the textbook theory.
What we want to see is for the SPX's right shoulder to be the same or slightly above the shoulder on the left. This will make it to be a nice reverse head and shoulders. If the SPX drops below the left shoulder then this will be a pattern failure and could send the SPX down even more.
It is time once again to have a look at the weekly chart of the S&P 500. Last week the main index made a doji like pattern in the weekly chart. As you can see above, the doji like pattern is where the body is small and the top wick and bottom wick are almost equally long.
This kind of pattern in the candlestick chart signals indecision in the part of market participants. And that is quite true for last week. We did experience some volatility in trading from Monday to Friday.
Although the doji signals indecision, we have something positive in the weekly chart. The SPX is still finding support at the weekly 20 MA. In the past, the SPX manage to find support at the rising weekly 20 MA. Perhaps this time it might also find support at the rising weekly 20 MA. For the most part of 2021, the SPX was trading above the rising weekly 20 MA.
Taking a look at the daily chart of the SPX we can see that it is struggling to go back above the 20 MA. This is a test of whether the bounce back up is worthy of a sustainable bullish reversal. A weak bounce will never go back above the 20 MA. So watch the 20 MA carefully.
I will tell you what I am anticipating. I anticipate that perhaps the SPX will drop a bit more and form what we call a reverse head and shoulders. This is a bullish pattern typical of many great bullish reversal back up. If that happens I want to see it trade back above the downtrend line that I have drawn.
If SPX manages to break back above the downtrend line then I have more confidence that it will win back the old high areas and then proceed to make new all time highs. November and December can be great times for the stock market.
We have a strong support area below which I have highlighted. The price congestion on the left is good support. I think this is also where price might meet the 200 day moving average. Although I hope we do not need to drop to the rising 200 MA. That will be quite a drop from the current price.
By the way, a rising 200 day moving average tells us that the S&P 500 is still bullish in the long term. The bull market is very much alive it is just having a correction.
Moving down to the 60 min chart of the SPX we can see that it is once again in correction mode after a rapid rise. It is finding support at the top of the previous highs. It just had a bearish cross where the 60 min 20 MA cross below the 50 MA but as long as support holds, we are still alright.
However, if the SPX drops below the support area, then we will once again challenge the lows. Watch for the break above the down trend line that I have drawn. If SPX manages to do so, then it means we will have a nice chance to move higher.
One sector that is very encouraging right now is the Industrials sector or the XLI. First of all the XLI found support at the rising 200 day moving average. It formed a double bottom and has also broken above a downtrend line. Notice there is also bullish divergence in the stochastics and the MACD Histogram.
There is also a MACD buy signal that happen recently. All these are bullish technical developments and you should take note of it. So far I do not see any failure of the double bottom pattern. As long as XLI stays above the downtrend line that I have drawn, then I think it will be great for this sector and the stocks in this sector.
Which brings us to another point. If the XLI is doing well, then perhaps you should go through the stocks in this sector to find some buying opportunities.
The next sector that I want to show you is the energy sector or the XLE. It found support from the rising 200 MA and it also formed a reverse head and shoulder. I believe that it has more than met the target of the reverse head and shoulders. Right now it is challenging the previous high which I think there is a good chance for it to break above.
It is still above the rising 20 MA and as long as it stays above the area that I highlighted above, then it should continue to trade higher. If it does so, then it will be good for energy stocks. Many energy stocks have been rising a lot recently and a breakout higher in the XLE will help them to continue to trend higher.
The last chart I want to show you today is the chart of XLF or the financials. There have been numerous attempts by the financials to break higher in the past. But they have failed. At this moment, the XLF is once again trying to break higher. I think this time there might be a good chance for them to break higher.
It had a nasty gap down but quickly recover the losses and after some consolidation it broke higher. This can be called a flag pattern or a measured move pattern and I think that as long as XLF stays above the are around 37.50, I think the measured move can bring XLF up to 40.50 which will be a good thing for financial stocks.
Have a great week trading ahead and I will see you in tomorrow's analysis. Shalom.
The USO or United States Oil Fund is in a very bullish mode right now. With it trading above its rising 20 MA and 50 MA it is in an uptrend and more possible upside is possible. Today USO is breaking higher and the odds of it going higher is good. I have drawn the minor support and also the large support.
If in the case that USO falls below the 20 MA, then these areas as the support areas to watch. But so far there is still no weakness in the USO. We should remain bullish in the USO as long as it is above the rising 20 MA. This is just a simple trend following method to help us catch the trend.
XES or the Oil & Gas Equipment and Services etf recently broke out of a reverse head and shoulders pattern. This is considered a bullish pattern and a target is where the resistance area will be. It recently had a bullish cross and is still trading above the rising 20 MA. I think XES will likely go up to meet the resistance area.
Still do not know if it will break above the resistance area but that will be a short term target and when and if it reaches there then we will analyze it again and see how it performs.
A very bright spot in oil sectors is the XOP or the Oil & Gas Exploration and Production sector. XOP broke above a heavy resistance area and this will now be a strong support area for XOP. This is good news for stocks in the XOP as they are very likely to go higher with support below. As long as XOP stays above the green area, then we can be confident that XOP stocks are likely to continue to climb up.
Continue to remain bullish in the XOP as long as it stays above the rising 20 MA. This is a short term trend following method and as long as XOP stays above the 20 MA then it is likely to make more bullish moves.
SPY is doing quite well and in this 60 min chart currently it is still trading above the gap. If SPY manages to stay above the gap then I think it is very likely to move up next week. If today it closes the gap, the line there which I have drawn will be the support area to watch.
The daily chart of the XLK shows that things are improving for the tech sector. This is because XLK gap from a congestion low area but it is encountering some resistance at the 20 MA. It is quite common for a declining 20 MA to act as a resistance. The XLK might even fall a bit because of the 20 MA but I do suspect a reverse head and shoulders can form.
So even if XLK drops, we want to see it drop to around the area of the left shoulder. If that happens then we will have a bullish reverse head and shoulders which should be bullish for the XLK. What we really want to see is for the XLK to go back above the 20 MA and then go back above the downtrend line. Then we will be more sure that XLK is going to go higher and make new highs once more.
Sometimes in the stock market and in trading, a day can make a big difference. Just when the markets are drifting lower and might about to break lower to meet the 200 MA, a news comes in such as Senator Mitch McConnell agreeing to keep the government from defaulting and raising the debt ceiling.
I think this news helped the market to quickly rally from the lows and if you look at the chart of the S&P above, you can see a bottoming tail formed. Following the bottoming tail, the market rally up more today. The first time the S&P met the 50 MA, it collapsed quickly. This time we might once again meet the 50 MA but since supply might have been absorbed, it is possible for the market to ignore the 50 MA resistance and rise further.
Watch the downtrend line. If the S&P can trade back above it, then this is a real bottom and we might reverse back up to have a bullish last quarter.
The 2 hour chart of the SPY points us to the fact that it is jumping up pre market. An ascending triangle pattern has formed and this makes it easy for us to do an analysis. It is easy because if SPY says above the top of the ascending triangle pattern, then I know that the markets will continue to rise and have a bullish reversal back up.
On the other hand if the top of the ascending triangle does not hold and the SPY breaks below the lower trend line then this rally is just another mini bear rally and more sell off will come in the future.
Also do watch the bigger downtrend line that I have done that coincides with the downtrend line in the daily chart of the SPX if SPY can break above this bigger downtrend line, then it is likely we have found a bottom and will move up from there.
The Nasdaq 100 futures above also hints of a bullish reversal back up. A nice daily bottoming tail formed and as you know the presence of a bottoming tail can mark the lows of a correction. Watch the BT carefully. As long as Nasdaq 100 stays above the lows of this BT then we have indeed found the low.
The chart of the Nasdaq 100 reminds me of a familiar pattern that may form. In fact a reverse head and shoulders pattern is possible where the Nasdaq 100 goes up and meet some resistance only to fall a bit to make the right shoulder and then rise again. This is a bullish reversal pattern. I am just anticipating and letting you know my thoughts.
The market may or may not follow this script and we need to take a look at them as each day goes by and make the appropriate decision.
We had a nice rally yesterday only to see the SPX futures coming down today. I think it is beginning to make a triangle type of pattern which you can see clearly in the 2 hour chart of the SPX. By connecting the highs and lows and drawing 2 trend lines, the upper one and the lower one we can see how a triangle is taking shape.
As you know, with triangles, it either breaks up or breaks down. At the moment it seems that the SPX is hovering at the lower trend line and wants to break below it. If this happens, then we can potentially see more selling in the SPX.
While we are nearing support and important price support in the SPX, I do not like the congestion sideways trading that is happening in the SPX. A strong support should help it bounce up but instead the SPX is trading sideways as if it is absorbing all the support there and weakening the support.
It is like a wave that is slowly eroding the sand wall and with each day, it gets weaker and weaker. Eventually a breakdown will occur and if that happens, then we could see the SPX sell off to the rising 200 MA which is another important area of support that is watch by many institutional investors.
XLI or the Industrials is sitting at the rising 200 MA once again. A potential double bottom that might or might not happen. In this weak market I ideally want to see this double bottom trade above the downtrend line that I have drawn before I am fully confident that the Industrials are making a comback.
If the 200 MA does not hold and if the double bottom cannot materialize then we could see another round of selling down in the XLI.
The QQQ is also at an area of support but a bearish cross has materialize in the QQQ. The support on the left is a small minor support and this could be easily broken. If QQQ breaks below yesterday's low and the low's of the previous day we could see it drift down to the rising 200 MA.
Lastly the XLV is nearing the important price congestion support. It looks quite weak as yesterday it formed a topping tail. This tells us a story of weakness where the XLV tried to find support, bounce up but quickly sold off again. Well, perhaps we might meet the rising 200 MA support after all.
This is also where XLV will be meeting the big price congestion support on the left. A potential area to see if there might be a bullish reversal in this sector. But with this weakness in XLV I would be a bit slow to buy. Only if there is a convincing change in the 60 min chart to show that it is reversing back up will I consider buying.
Yesterday we saw another down day for the S&P 500. Support on the left is still holding but a very feeble attempt to bounce up. If SPX continues to trade below the support area, then we could see more selling ahead.
Unless SPX can trade back above the downtrend line, then we are still in a bearish mode.
Last Friday we saw a bullish green bar appear in the S&P. this is a good sign as the S&P makes a double bottom pattern near support level. Watch the highs and lows of the green bar. If S&P is able to trade above the highs of the green bar then we could be in the start of a bullish reversal. On the other hand, if S&P drops below the low of the green bar today then we could be going down more to touch the green support area.
The blue arrows are the measured move target. The height of the previous sell off is projected downward from the tip of the bounce up to get a projected downward move target. The 4200 area is a good support area and also a potential area where the rising 200 MA will meet price. We must watch this support area carefully to see if there can be a bullish reversal.
The downtrend line that I have drawn is not close to price. Ideally we want to see price go back above the downtrend line to see a good bullish reversal. But in the case right now we are very far from the downtrend line. Which brings into question the strength of a bullish reversal if any.
The 60 min chart of SPY shows us that the market has at least gone above the 60 min 20 MA. This is usually a good sign but we are still not out of the woods yet. What we want to see is for SPY to trade above the highs made in SPY last Friday. That may help to bring in the bulls. The lows which I have marked green are support area.
If SPY drops below this support area, then more selling will be coming.
QQQ is a the support level. Last Friday it made a bottoming tail which in itself is encouraging because it shows that QQQ is resisting to go lower. If QQQ is able to break above the highs of the bottoming tail then we could have a bullish reversal. The measured move target that I have drawn in blue is quite near support levels.
The thing that makes me not so confident is the fact that there might be a bearish 20 MA cross 50 MA soon. The last bearish cross in May, the QQQ ignored it but this time it may or may not ignore. So we should still be on the lookout for a genuine bullish reversal back up.
The last few days had been a very painful trading days for the bulls. But for the sophisticated stock market trader, it is just another trading opportunity as short selling stocks can be quite profitable and fast as well.
The SPX above shows that the market is selling off a lot but about to reach an important area of support. This is where price has a lot of congestion and therefore this support will be a bit stronger that the others as it involve previous lows and previous highs as a support.
Which is why I think that if a bullish reversal were to happen than it could be here. But hold on to your horses if you think of buying now. Just not yet. We need confirmation in the 60 min charts.
QQQ is still selling off with no rebound. It is more stubborn that the S&P but nevertheless the sell off also impacted the tech sector. Next area of support to watch is the line which I have drawn above.
Taking a look at the 60 min chart of SPY we can see that the trend is still bearish. I say so because the SPY is still below the 60 min 20 MA, 50 MA and 200 MA. If one are to focus on long or shorts for the swing trades or momentum you need to look at the 20 MA. While the SPY is still below the 20 MA, most stocks will fall from one day to the other. So best not to long stocks until SPY goes back above the 20 MA.
SPY has also drop below the support area line which is the previous low. I have drawn a line there. If SPY cannot go back above this line then more sell off is about to happen. Ideally we want the SPY to go back above the 20 MA and the 20 MA to eventually go back above the 50 MA.
The IWM or small caps are about to hit a trend line support. The last time the support worked and this time it may work as well. But if the trend line does not support IWM and it continues to drop below it, then more serious selling can happen.
This is because IWM is in a triangle like pattern in the daily chart. With triangle patterns it could either breakout or breakdown. And it seems like IWM is about to break below it quite soon. If that happens this means that small caps would be a serious sell mode since a break below a triangle would incur quite a lot of selling.
The MDY or mid cap is currently at the rising 200 MA support. The last time it hit the 200 MA, it bounce back up. It is also perhaps about to make a double bottom formation. If the pattern appears and it works, then we could see MDY moving higher.
However, if the 200 MA fails and there is no double bottom pattern, then we indeed will be in for more selling.
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