After a big plunge the major indices have bounced back up nicely. The Nasdaq is leading the markets once again and have recovered most of its losses.
Will the recovery continue to make new highs?
The fact that techs are once again leading the markets is a good sign. Whenever techs advance ahead of the others, we can usually have a more bullish bias compared to a bearish bias.
If you would like to check out the past analysis that I did, please go to the US Stock Market Analysis Page. There you will find archived pages of my past analysis and for those who are new, you can read through them to learn how we have been able to catch important turning points in the market.
p.s I will be writing quite fast each day on these analysis so I apologize for any spelling mistakes or errors. As long as you understand what I'm trying to say then I think you will be fine.
As we enter the last trading day for February what can we expect from the Dow Jones Industrial Average and the rest of the market. We already had quite an impressive run up. Yesterday's fall I think is just a correction within a 60 min uptrend. Its not unusual for the market to do this as it rises.
Markets do not often rise in a straight line. They drift higher, going up a day or two and then correcting back. The important thing is for us to be aware of the trend.
The above is the 5 min chart of SPY. Normally it is a good idea not to long stocks when SPY is below in the red zone. The red zone is just the area below the 50 MA. When SPY was above in the white zone it was conducive to long stocks. Look how the market gave us 2 nice days of bullish move up. Then yesterday, it dropped below into the red zone and this hinted to us to be cautious or even turn bearish.
Sometimes following simple rules like this and having a workable system will keep us out of danger. The system may not catch 100% of the short term trend but it will keep you on the right side of the market most of the time.
The above is the 60 min chart of SPY. As you can see, SPY is still in a nice 60 min uptrend and since it has not fallen below support, we can consider the drop a correction. What we need to see is some stabilization before we can consider buying in again.
I think utilizing the 5 min red zone white zones will enable us to enter safely. I still consider the SPY to be bullish as long as it stays above the 50 MA of the 60 min chart.
The 60 min chart above shows how the selling started. While the 5 min chart tells us in visual form of red zone white zone, the 60 min chart can tell us more about the price action.
First, the 60 min chart broke below a box consolidation. This is bearish. Then it broke below an uptrend line and this help to send stocks lower.
Currently it is dropping to an area of support and also the powerful 200 MA in the 60 min chart. If it can stabilize there, then we can expect a rebound.
The semiconductor sector has erased all the losses that id made from the plunge. It is as if nothing has happened if you had slept through it. That is some good news because it shows strength in the semi sector.
Yesterday it tried to go higher but formed a topping tail candlestick pattern. While it may not turn into a full crash, the presence of a topping tail should make those who are involved in semi stocks to tighten their stops and be more cautious.
You can never be too careful in short term trading.
The QQQ which tracks the performance of the Nasdaq 100 has also recovered all its losses from the plunge. While the Dow and the S&P had not reach the former highs yet. The Nasdaq was able to do so. With tech leading the markets, it is always a good sign for the continuation of the bull run.
There may be some parties who are concerned about a double top in the QQQs but let us look carefully at the support area first. If the QQQ can stay above that area as it corrects, then the sideways movement will be just a correction that will eventually help to send the QQQ higher.
I was a bit late to upload some of these charts which I have posted in the Telegram Group. So for those who rely on looking at the analysis on this website I apologize for that. Its always faster and easier to load things into Telegram which is why its a good idea for you to join the group as well.
Yesterday, I warned about the dangers the market is facing. There are weaknesses in the market. Even the 5 min charts of SPY and DIA is showing weaknesses as they traded in the red zone most of the time. One thing I do not like is that Apple is also making 2 topping tails in its daily chart. If you have time perhaps you can check out the chart of Apple.
If you look at the chart of Dow above, you will realize that Dow is about to have or actually having a bearish cross. This is where the faster 20 MA is crossing below the slower 50 MA. It has not happen for a long time. There are two ways to see this.
First, it might be the start of a new downtrend. Or secondly it can be a false signal. As you know most signals are just warnings until the real drop happens. At this moment, my reference point will be the support area that I have drawn. What I have been telling you is that I anticipate a cup with handle.
If Dow can stay above the support line then the handle might materialize. Otherwise we can expect more selling in Dow.
The 60 min chart above shows the Dow dropping to the 200 MA. There is some support there as well. What traders will be looking will be whether the support holds and whether Dow can break back above the downtrendline. If Dow can do so then we will have the continuation of the bullish run up.
The Nasdaq 100 futures is much stronger than the S&P 500 and Dow. It is forming a trading range right now. When an index forms a trading range it is a very good thing. Makes it easy for us to analyze the index. if Nasdaq breaks above the trading range then we be more bullish. On the other hand if it breaks below the trading range, then we can expect more selling in the major markets.
We are still in a nice 60 min uptrend. After the massive plunge, the Dow, S&P 500 and Nasdaq has been able to stage an impressive rally. As the indices reach resistance areas, we are slowing down at the moment.
The chart above is the 60 min chart of the Dow Futures. There are two things that I do not like at the moment with this chart. First of all, Dow has dropped below its 60 min 50 MA. Secondly it has a bearish cross. Usually this is bearish and demands some cautious on the part of traders.
However, I do not want to be bearish blindly because I believe all these are normal after a nice run up. So as long as the support holds and the Dow stays within the box area I have drawn then we can consider Dow to be taking a rest after a bull run up.
If you look at the daily chart of SPY, you will realize that a little topping tail has formed. Coupled with the fact that a bearish cross might happen, there is some caution that we need to have. Notice how the recent volatility has caused the appearance of many topping tails and bottoming tails?
This tells us that investors are nervous and undecided about what might happen in the stock market.
It is always good to look at the 60 min chart for guidance. The 60 min chart of SPY is still in a nice uptrend. It corrected a bit as it touch the 200 MA resistance. But there is some support area below and as long as SPY stay above this support area, then we can still consider to be trading sideways. It is just a rest after a nice run up. Some consolidation and then a breakout will be good to help send the major indices higher.
For those who do not know what the SPY, DIA and QQQ are, they are the exchange traded funds that tracks the performance of the S&P 500, Dow and Nasdaq 100. It is very useful to use them for analysis along with the futures charts of the major indices.
QQQ's performance is the most impressive among the 3 major indices. It has traded back above its 60 min 200 MA. It is still in a nice uptrend and as long as it stays above the support area, then we should continue to be bullish bias.
The slowing down in bullish momentum is due to the resistance area which we can see on the left. This will take some time to overcome but as long as the uptrend is intact, I believe QQQ will eventually go back up and make new highs.
The daily chart of the DIA above shows that the Dow has certainly make a remarkable comeback. While it is still halfway from the top, I believe if it can make a cup with handle pattern then it will make an explosive bull run in the near future. A cup and handle pattern is the perfect recipe for a nice bullish run up. So pay attention to how DIA behaves this week.
May 06, 19 06:04 AM
Technical analysis of the US stock market with coverage of futures.
May 06, 19 05:46 AM
Step by step technical analysis of the KLCI Malaysian stock market.
Apr 22, 19 06:55 AM
A technical analysis of the US stock market. I go through the major indices of the US market and see where it is likely to go.
Apr 22, 19 06:47 AM
Technical analysis of the Hang Seng. Learn how the Hong Kong stock market is doing and where it is likely to go.
Apr 22, 19 06:36 AM
Technical outlook for Malaysia's biggest market cap stock.