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The Coronavirus or Covid 19 had certainly impacted the US market this past week. What's next for the stock market?
Let's take a look at the charts below each day to see what might happen to the US stock market.
We had another very bullish day in the US stock market. As you can see from the chart above, the S&P formed a large green candle.
Right now, it is near the declining daily 20 MA. The 20 MA could be a resistance area. Not a very strong one but they do occasionally cause the market or stocks to stall a bit.
What we want to see is for the SPX to continue to stay above the middle of the large green candle. This will tell us that the bulls are still in control.
If SPX drops below the middle of the large green candle, we might have correction and this tells us that the bears are taking control.
If SPX can trade back above the daily 20 MA, then there is a possibility that SPX may move higher and meet its daily 50 MA.
The 60 min chart above shows us that the SPX is already in a 60 min uptrend.
It is already making higher highs and higher lows in this 60 min chart. This is good and we want to continue to see it making higher highs and higher lows in the 60 min chart.
Which is why the uptrend line that I have drawn is important. If SPX can continue to stay above this uptrend line then we could continue to make higher highs and higher lows. Thus the continuation of an uptrend.
On the other hand, if SPX drops below the uptrend line, then there could be some weakness and correction.
Watch the green support area as well. This is a former high support. Where the old highs once overcomed now becomes a new support. So if SPX can stay above this support area, then it could continue to move higher.
Much will depend on how SPX close today.
If it can close higher and form a nice weekly bullish green bar then we could have a bullish continuation next week. But if it drops a lot and then form a topping tail in the weekly chart then it could mean weakness ahead next week.
Yesterday I read about how investor Bill Ackman's firm made more than $2 Billion hedging the fall in the market. And now he is using those gains to buy stocks.
You can read a CNBC article on this Bill Ackman exits market hedges, uses $2 billion he made to buy more stocks including Hilton.
Well, if a famous investor is now putting money to work and buy this sell off, perhaps a bottom is really really here.
I pointed out to the large green bar in the SPX in my analysis and this shows buying interest.
What we really need to see right now is whether the SPX is able to stay above the top 1/2 of this candle. If it drops below half of this large candle, then it tells us that the sellers still dominate the buyers.
Even if there is a genuine bottom, do not expect there to be a smooth ride up.
When there has been a huge sell off, any move back up may take some time. What we also want to see is for the SPX to trade back above the daily 20 MA. This is the red line on the chart.
I have also drawn a downtrend line on the daily chart above. If SPX can trade back above this trend line then it tells us that there is indeed a change of trend and the market may move up in the future.
The 60 min chart above shows us that the SPX has traded backa bove the 60 min 200 MA. It has been below this moving average for a long time and thus the bearishness.
We want to see the SPX continue to stay above the 60 min 200 MA which is also where the price support is. I have colored the support area in green.
If it can stay above this support area then we can move higher. But if it drops below this green support area, then we might have some correction downward again.
Yes a bottom is probably there in the S&P but there may still be volatility as it tries to change from a bearish trend to a bullish trend.
Yesterday the Dow rose more than 2000 points. After the Fed announcement of stimulus plus Nancy Pelosi stating that the Democrats and Republicans might come to an agreement and deal, I think the markets know that the Fed and the lawmakers are serious in stimulating the economy that will be affected by Covid 19.
A stimulus of $2 Trillion or more might be the answer that is needed as so many workers, people and businesses are affected.
What we need to see now is for a peak in the cases of Covid 19 in European countries and the United States.
The cases in the US are rising fast and everyone really needs to take this seriously. If we practice social distancing, we might be able to start to see a reduction in cases in a few weeks to 10 weeks.
By the way I read that UK's Prince Charles is infected with Coronavirus.
So do be careful and practice social distancing and do what should be done to avoid the virus.
We had a big long bullish bar yesterday in the SPX. What we can call a Marobozu. This tells us there is buying interest and the markets like the news that is coming out.
But we just don't know if the number of Covid 19 cases that may increase will continue to have a negative impact on the markets or not.
So today do check out if the markets are able to stay above the middle of the large green bar. If it can, then perhaps we might have found a bottom.
Otherwise, the market may weaken and another sell off may be needed before a bottom appears.
One of the reasons why I think a bottom is near is the fact that SPY is quite oversold and is very near long term support.
The weekly stochastics is quite oversold. The stochastics' movement is quite smooth with a railroad track and this can tell us that a smooth rise back up may happen.
I have highlighted the green area as the support area.
Do remember that support is not a definite price. It is an area.
Therefore, we do not really know whether the market still needs another sell off before it really bottoms. But I think we are quite near the bottom.
The Fed has embark on an unlimited stimulus. They did not mention a ceiling to the help that will be given and this may be the good news that the market needs at the moment.
SPX has broken above a 60 min downtrend line. Watch this.
If it stays above this downtrend line and also the lower uptrend line, then I think the Fed stimulus will work to set a bottom.
But if SPX trades below this lower trend line then...well the stimulus did not work to calm the markets and we may have lower prices.
SPY is still in a downtrend with it trading below the 60 min 20 MA and 50 MA.
If the Fed stimulus really works then do expect the SPY to trade back above the 20 MA and then the 50 MA.
Finally we will see a bullish cross where the 60 min 20 MA crosses back above the 50 MA and this might help to set a new uptrend in the 60 min charts.
Last week I pointed out to you how the S&P 500 futures is setting up a weak 60 min ascending triangle.
The fact that it is still below its 60 min 200 MA points to a bearish pressure.
But what is really making the pattern fail is the increasing number of Covid 19 cases in Italy, Spain, Germany and of course the United States.
A big majority of the cases in the US can be found in New York and this is where Wall Street is and no doubt it will play on the emotions of major traders and investors.
So a bullish setup in these kind of cases perhaps may have only a 25% success rate.
I also pointed out that if the SPX breaks below the uptrend line in the pattern, then there could be another wave of sell off.
And that is precisely what it did.
I think a huge chunk of the gains that the Dow Jones made since President Trump took office has been wiped out from this crash. More could be coming as long as the cases of Covid 19 does not peak in the United States and Europe.
So my advice is this....
Look at the number of Covid 19 cases. If they do not peak out, then more sell off could happen in the stock markets.
Coming back to the 60 min chart of the SPX, you can see that there is perhaps a 60 min bearish flag that is setting up.
Well, if SPX drops below the lows of this flag, then another wave of sell off could happen.
A typical bearish flag target could be the length of the pole and this might send the Dow below 18000. I'm showing you the SPX not the Dow chart but I think you get the idea.
The above is a monthly chart of the Dow Transports ETF, IYT.
It broke a monthly long term uptrend line and has been in a free fall ever since.
Right now it is at a long term previous low support. Still holding on to this support area, but if it breaks below this area, then you can expect a sell off to the next support area.
Transportation are what power the US economy bringing stuff and passengers to various places in US and around the world. If they are falling, it means that the US economy is not doing that well and may be poised to enter a bad recession.
The stock market is forward looking and usually it reflects what might happen in the next 6 months.
What happens in the SPX, Dow and the Transports tell us that a lot of people will be losing their jobs and suffering a lot financially in about 6 months time.
Today I watch a mini documentary about Amazon and the sellers there. Business has slowed down tremendously for Amazon sellers. Some are finding it difficult to source stuff from China and their business are really hurting.
Therefore, I urge you to spend wisely and have lots of savings. If you are running a business, its always best to not over leverage and leave that extra cash in times of need.
I think the price action in the SPX these 2 days points to the fact that the US market is seriously trying to find a bottom. But it is struggling very hard in this process.
You can see from the chart above that it has broken out of a 60 min ascending triangle. Normally this can be a strong signal of a bottom.
Plus if you can see, there is a 60 min 20 MA cross back above the 60 min 50 MA. What I call a bullish cross.
In other situations, I would be more confident of a bullish reversal back up but since we are dealing with an unknown virus that keeps on spreading on and on, I lack the confidence.
A strong build up of cases in Europe and US will have a drastic impact on an already fragile economy. What if the cases in US rises to 50,000?
Imagine what that will do to the economy.
But charts are charts and we should let the charts tell us what might happen.
Yes, a 60 min ascending triangle bottom might be forming but it needs to continue to move up. If it breaks below the lower trend line, then this can be a pattern failure and this could mean another wave of sell off that might come.
The SPX is still below its declining 60 min 200 MA and this still gives bearish pressure on the market.
Some clues could perhaps be found from Apple's stock chart.
Notice how it is still finding support at the daily 200 MA. This is an important area I think. If AAPL manages to find support here then perhaps the market really can bottom.
It has refused to go down any further once it meet the daily 200 MA. However, if it continues to break below the daily 200 MA, then I think we could have another wave of sell off in the markets.
If AAPL can find support at the 200 MA, it really needs to break back above these 2 trend lines that I have drawn. A first trend line break will tell us that the bulls are winning and the break of the second trend line will tell us that a genuine reversal back up is possible.
We also want to see it trade back above its daily 20 MA.
I think the situation now in the US stock market is that they are quite oversold. But on the other hand there is indecision in the markets.
Normally, in an oversold situation, the markets can bounce back up and this is a very good time for people to bottom fish. However, the rise in Covid 19 cases make market participants undecided if they want to go back in in full force now.
In the chart above, we can see the SPX breaking below a support area but it did not drop drastically after that.
The markets were drifting sideways violently and perhaps if it breaks above the downtrend line it might move back up. But I think we do need to see it go back above the 60 min 50 MA and the 60 min 20 MA is above the 50 MA.
But the best is if the SPX can go back above the 60 min 200 MA. Then we can be confident of a genuine trend change.
The chart above is the weekly chart of the XLY which represents consumer discretionary.
XLY has fallen a lot in a very short time and this shows us that consumer confidence is very low. But at a support area, this might mean a possible bottom. There is quite some solid support around the 75 to 80 area and if it stabilizes then perhaps a bottom in the stock market as well?
The weekly stochastics is quite oversold, so hopefully along with weekly support we might find a bottom for the consumer discretionary.
The chart above is the weekly chart of QQQ.
It is quite oversold as well. The weekly support is still holding and perhaps it might hold. If the support cannot hold, then there is a possibility that QQQ may sell off to the rising weekly 200 MA.
The Dow plummeted almost 3000 points yesterday.
Well, when there is a lot of fear in the markets, that is what happens. The rallies cannot sustain and are met with heavy selling.
Today, as we look at the SPX, there is an area of support around 2400 that seems to be able to keep SPX afloat. I have highlighted the area in green color.
This support might not last however.
If SPX cannot go back up and find a bottom around 2400, there could be more selling as the SPX breaks down from this support area.
A breakdown of this sideways trading might set off another wave of sell off. So do be cautious if SPX drops below this area.
The chart above is the daily chart of the QQQ.
You can see that there is a big increse in volume recently. This tells us that there is a lot of heavy selling happening in the QQQs.
It slashed through its 50 MA and 200 MA easily.
In the past this will usually be an area where the market will find support and rebound back up.
This tells us that the situation with regards to the Covid 19 is very serious and it could drag the US market and even the world economy into a deep recession.
At this moment, the QQQ is at its previous low support area. I have highlighted it in green for you to see. If support does not hold, if QQQ cannot bottom here, then we could have lower prices in the QQQ.
Last Friday the market had a very impressive rebound.
In the process we can see that there was a possible 60 min cup with handle that form.
However, the fears of the Covid 19 on the world's economy caused a sell off in the futures today making it limit down.
This goes to show that news usually trumps chart patterns.
If SPX continues to fall below the low of the handle, then we could see more sell off in the US market.
World markets like Spain's index and the German Dax had some massive sell off today and I think it is possible that the US will follow suit and move lower. By how much I do not know, but don't be surprise by a 2000 point drop in the Dow Jones.
The chart is the weekly chart of the SPX.
This helps us to see the bigger picture of the S&P 500. We can see how the market is sitting at a long term support. The previous low plus some consolidation back in 2017 provides the support.
This area has been met last week and the market rebounded sharply.
But it may have absorbed the support and if this week if the selling continues and the Covid 19 cases increase and if Governments around the world put their citizens on lockdowns, we could see it break this support.
And if support breaks, we might see lower prices in the stock market index.
The SPX sell off has more than met its measured move target.
The other thing is the SPX is quite extended from the daily 200 moving average. When SPX is far away from it, it can snap back up.
So there could be an oversold bounce.
I don't think the market will go back up in a straight line back to new highs but this oversold bounce could be an opportunity for traders to make a nice bullish trade.
Look for stocks that are at support and perhaps making a daily bullish candlestick pattern like the bottoming tail. Or bullish engulfing.
I read that the Australian index was down 8% before recovering and went up positive 4%. So this tells us that those who want to sell were panic selling and when there was no one left to sell, the stocks had little bearish pressure.
This made the stocks move higher.
Therefore, this is a panic selling and that is what might also happen to US stocks.
QQQ which represents the techs is also quite oversold.
It has met its measured move target and a bounce up might happen.
We could see some volatile trading ahead. For a sustainable rise, the QQQ has to break above the downtrend line that I drew.
If there is a bounce up, look for resistance at the QQQ's 200 MA.
Despite Trump's announcement of the tax news there is still no concrete bottom in sight.
However, the sell off has slowed down quite a lot.
You can see from the 60 min chart above that the SPX has tried to move above the 60 min 20 MA and 50 MA. There might even be a bullish cross that may help to send the markets higher.
I think the classic uptrend line is beginning to build up in the SPX again.
There is also a horizontal line that it needs to break out of in order to move higher. If it can break above this line, then the markets has a chance of reversing back up.
On the other hand, if SPX breaks below the uptrend line that I show in the chart above, there is a possibility that some decline might happen.
I think there is a real indecision in the markets recently.
We have a topping tail in the SPY, which if it breaks below the lows of it, then it could move lower. But the next day, SPY formed a bottoming tail.
Well, if SPY breaks above the highs of the bottoming tail, then it could go higher today. Many bottoms in stocks have a bottoming tail.
But today the market may be opening a bit lower. So if SPY breaks below the lows of the bottoming tail, then it could resume its downward movement.
I think to have a sustainable reversal, SPY needs to break above the downtrend line that I have drawn. That way it can also start a new uptrend.
A positive note to here is the QQQ is sitting at a daily ascending triangle top support. Yes the top of a previous ascending triangle can be a support area.
This is also where the QQQ meets its rising daily 200 MA which can be a very powerful support as well.
Hopefully these two supports can help QQQ. If QQQ trades back above the highs of the bottoming tail it formed yesterday then it could reverse and go back higher.
It may perhaps be a bottom as well. Especially if the QQQ can break above the downtrend line that I have drawn.
On the other hand, if QQQ breaks below the lows of its bottoming tail, then it could decline further and this will drag the market lower along with it.
After the SPX broke below the uptrend line, it had a sell off and on Monday, we had one of the biggest one day loss since a very long time.
Currently, the SPX is still in a downtrend but after Trump announce some tax help the market rebounded back up. It is fast approaching a resistance area and if the SPX cannot go above the resistance area, then there could be a further sell off.
The above is the daily chart of the SPY.
You can see there is a topping tail formed yesterday. Market may gap up a bit today but if the SPY trades back below the low of the topping tail, then we could see more sell off.
A possible target could be the measured move target.
So do be cautious if the SPY drops below the lows of the topping tail.
It looks quite a volatile trading period in these few days. That is not surprising when the market is trying to bottom.
The chart above is the 2 hour chart of the SPX.
It already has a bullish 20 MA cross above the 50 MA and this might be a good sign.
However, I would like to bring your attention to the possible 2 hour ascending triangle pattern. If SPX can break above this chart pattern, then SPX will go higher.
On the other hand, if it breaks below the lower trend line of the ascending triangle, then there could be correction.
The chart above is the daily chart of the QQQ.
When QQQ hit the 200 day moving average, there was a furious rally back up. However, the rally has reached around the resistance area.
The red area is the resistance area. The 50 MA could act as a resistance as well.
Therefore, there could be resistance as QQQ reaches here.
If QQQ can trade sideways around this area, it would have absorbed the supply and then perhaps a breakout higher.
Its been a pretty volatile trading day yesterday.
So far we can see that the SPX is still trading above the uptrend line that I have drawn in the chart of the SPX above.
As long as the SPX can stay above this uptrend line, then I believe it will grind higher.
On the other hand, if SPX drops below this uptrend line then it could signal weakness and correction.
I have drawn a horizontal line on the chart as well.
I think if SPX can break above this horizontal line, then the market could move higher.
For those of you who have studied chart patterns a bit, you might notice the two trend lines form some sort of a 60 min ascending triangle.
A breakout above this ascending triangle will help to send SPX higher, but a break down will signal weakness and send SPX lower.
So do pay attention to where the SPX breaks out of.
The chart above is the chart of SPY. This is the ETF for the S&P 500.
It has broken above a steep 60 min downtrend line. This is actually a positive development as a change of trend is often preceded by a break of a downtrend line.
At this moment it might be forming a trading range. Well perhaps it may trade sideways a bit. But a break above or below the trading range will give us a clue to where SPY might move to in the short term.
I think it would be best for SPY to trade sideways a bit to absorb supply and then breakout of the trading range to move higher. This will usher in a sustainable 60 min uptrend.
Yesterday we really had a massive rally in the stock market. The Dow rose by more than 5% and more than 1200 points. Well, at some point after a big sell off, oversold bounces can happen and they can happen fast and furious.
Therefore, traders who have a sharp eye can make some nice profits by day trading.
The question now is, can the market rally back up straight and fast making a V shape recovery or will there be wild swings here and there?
I think one needs to put things in perspective and look at the charts.
If you take a look at the chart of the SPX above, you can see there are areas of resistance. These areas of resistance are supply areas and they need to be absorbed.
Thus most likely will might have swings in the stock market in these few weeks.
Or at least if there are no swings, the stock market needs to trade sideways slowly and slowly grind higher to absorb the supply.
From my experience, when the market has a big sell off, they can bounce up very fast but I think the bounce up will not reach the former all time highs area that fast.
It may go up rapidly then stall and then sell off and then bounce back up and then make its way back up again.
Well, most likely there will be some wild swings here and there.
Having said that, watch the lows of the bottoming tail in the daily chart of the SPX. I think that as long as SPX stays above the lows of this bottoming tail, then we would have found a bottom in this sell off.
A good way to anticipate things is perhaps to look at the 60 min chart.
Right now, it has already traded back above the 60 min 20 MA and 50 MA. SPX even had a bullish 60 min 20 MA cross back above 60 min 50 MA.
Notice that for some time, the SPX was trading below the 60 min 20 MA and 50 MA. Now the situation is reversed.
At this moment, the SPX is trading sideways and making a 60 min consolidation. If it breaks out higher, then SPX may move higher today, but if it breaksdown, then there could be correction.
The green support area around 3000 will be my first support. If it does not hold, then it could go lower.
Then you have the uptrend line.
I think that as long as SPX stays above the uptrend line, then it will grind higher. But if it falls below the 60 min uptrend line, then we could have some sell off and correction.
What we want to see is the SPX stays above the green area support and then trade back above the 60 min 200 MA. Then, that will be a better signal to tell us that a new sustainable 60 min uptrend is there.
If you take a look at the daily chart of the SPX above, you will see that it is like jumping off a cliff. Or you can say its a steep waterfall. Many red days with large red bars.
It can be scary to watch your portfolio's profit wipe out just like that in a few days.
This is due to the Coronavirus or Covid 19 and its impact on the global economy.
At first the virus mainly affected China and its surrounding neighbors. Even when the virus spreads to other countries like UK or the US, it was just a small amount of cases.
The market continued to move higher.
But then news came out that South Korea was badly affected. Then Italy had many cases being reported. All of a sudden, investors started to fear what might happen to the economies of nations when most businesses will be massively affected.
Living in Asia, but far from China, I did not feel the impact that much. But then, suddenly I saw my local airline company AirAsia X offering unlimited 1 year flights to Big Members in Malaysia for only RM 499 to Australia, China, Japan, Korea and India. (About USD $125)
Imagine 1 year of unlimited flights for only RM 499!!!
When this happens, you know that the Airline Industry is really hit hard.
Prior to that I read somewhere that Malaysian Airlines had more than 70,000 flight cancellations. I guess by now it may be more.
If that happened to one Airline imagine the impact it will have to airlines around the world not to mention the impact it now has on the travel industry.
Even the Cruise industry is heavily affected with many people fearing to join a cruise ship. I myself had book a Asia Cruise in May and the company, Princess Cruise has cancelled my booking with a refund.
Coming back to the charts...
Well as you can see, the SPX has formed a daily bottoming tail at support area. There is some kind of climactic volume as well. If you look at charts of SPY you can see the climactic volume better.
Perhaps this might be "the" bottom.
Watch the lows of the bottoming tail. I believe that if the SPX can stay above the lows of this bottoming tail, then we indeed will have a bottom.
How much the market will bounce back up and how long it will take for it to recoup all its losses we don't really know. I read somewhere that it takes about 4 months for the market to recover its losses.
The 60 min chart might offer us some clue and perhaps some trading setups.
It has been quite a long time that the SPX was trading below its declining 60 min 20 MA and 50 MA. Recently its 20 MA has gone flat and is now curving back up.
The SPX has also tried to go back above the 60 min 50 MA.
If the SPX can have a bullish cross where the 60 min 20 MA crosses back above the 50 MA, then we might see the SPX move higher.
Watch the lows I highlight in the chart above. If SPX can stay above this low, then we indeed have a bottom. Otherwise there could be more sell off due to the Coronavirus fears.
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