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Will the sell in May and go away materialize this year? Let us take a look at the charts of the market and see what it tells us.
As Apple reported its earnings, it did not give guidance for the near future due to the impact of Coronavirus. The market may be fearful of the maxim of sell in May and go away as well.
While this maxim worked at times, there are also times when the market ignore this. So the best way is to take a look at the charts as the days past.
Yesterday we had some weakness in the US market but as you can see from the hourly chart of the SPX above, it is able to find support at the previous low.
This previous low support area will be important. I have highlighted it in green color and I think that as long as the SPX stays above this area, then there is a possibility that the SPX and the US market will continue to move higher.
But on the other hand, if it drops below this green support area that I have highlighted, then the SPX will likely have more correction.
This is support and resistance in play and as long as support holds, then SPX will grind higher.
Notice that the SPX has also broken above a short term 60 min downtrend line.
This is somewhat positive as a break above a downtrend line is usually bullish. As long as SPX stays above the downtrend line then I think today it can move higher. Otherwise, we could be looking at more correction.
Perhaps another good way to gauge the SPX is by looking at the SPY chart 60 min.
So far, these few days, the SPY is hovering above the area of the previous high. This will be a support area for us to watch as well.
I have also colored it in green for you to be able to see it clearer.
The rising 60 min 200 MA which is the yellow line does tell us to be more bullish bias rather than bearish bias.
So with the SPY staying above the rising 60 min 200 MA and as long as the SPY stays above the lows of the green area, then I think that the US market will also continue to move higher.
Yesterday the SPX formed another green candle. This is positive and as long as today's price action stay above the top half of the green candle then I think we could be heading higher again.
From a bigger picture perspective, the SPX might be encountering the daily 200 moving average resistance very soon and this could be a big psychological area for traders.
But a very positive thing that is happening to the price action is the fact that SPX might be forming an ascending triangle in the daily chart.
The ascending triangle is a continuation pattern and if SPX is able to break out of this pattern then I think we can go higher.
The 2 hour chart above shows that the SPX is still finding support at the green area.
As long as it stays above the lows of this area, then the market can move higher.
SPX had some weaknesses yesterday but it has not broken above a 60 min downtrend line and if SPX continues to stay above the downtrend line, then I think today it can go higher.
Of course if it drops below the downtrend line then this could signal weaknesses and more correction.
Perhaps we can also take some clue from the QQQ.
The above is the 60 min chart of the QQQ. As long as it stays above the green area of support and also above the uptrend line, then I think it will move higher and bring the market up with it.
Yesterday we saw a big green day for the SPX.
It has formed a large green candle. And what we want to see is for the SPX to stay above the top 1/2 of the candle. If it is able to do so, then the probabilities of the SPX going higher is very good.
The area that I have drawn in a box is a consolidation area.
This appears at a resistance area (not shown) and what it is doing right now is it is trying to absorb the supply or resistance from the left.
If SPX is able to breakout above this consolidation, then the US market can go higher and also break above the daily 200 MA.
The 2 hour chart above shows us that SPX has already broken out of the trend line. This is usually bullish and if SPX manages to stay above the trend line and also the green support area, then most likely we will resume to go higher.
On the other hand, if it cannot stay above the trend line and the green support area, then we might have a correction.
If you take a look at the the daily chart of the SPX you can see that there are 2 bottoming tails with tells us that SPX may be rejecting to go lower.
It has already broken out of the daily trend line that I have drawn and if it continues to stay above the trend line, the SPX can go higher and meet the 200 MA.
The 2 hour chart of the SPX shows how the SPX has broken above the trend line. If it continues to stay above the trend line, I think SPX will continues to move higher.
Yesterday the SPX formed a daily bottoming tail. This could signal a rejection of going lower. But SPX needs to stay above the lows of the tail.
If it can do so, then next week we can move higher.
The above chart is the 60 min chart of the SPX.
As you can see, it broke above a downtrend line and this could signal a trend change. If it can stay above the green consolidation area that I have drawn, then I think we could move higher.
The SPX forms a 60 min triangle.
This could be a continuation pattern or a reversal as well.
If SPX breaks below this pattern, then there could be more selling today. If it breaks higher then we might have a reversal.
The QQQ is currently sitting at the 60 min uptrend line that I have drawn. This trend line is important and if it cannot hold, then QQQ could have more weakness today and may drop to 213 area which is where it might meet the rising 200 MA.
Yesterday the US stock market had a sell off towards the end of the trading day.
This can happen when the SPX and Dow are at resistance and are trying to continue to move up.
Right now the SPX is sitting at the lower trend line of the 2 hour chart triangle.
If support holds, then SPX can move higher. On the other hand if the lower trend line does not hold, then there could be more weakness.
Meanwhile Apple has recovered tremendously from its losses and is now quite near its all time high.
Can you recognize the setups that I pointed out in the weekly chart?
Well, they are bottoming tails and they can often give traders very nice trade setups.
Some wild trading happened in the SPX.
This is quite common as it tries to rise above a resistance area.
I think the SPX is forming a 60 min triangle type of pattern and this could give us an indication of where it wants to go.
If it breaks out of this pattern then the US market could go higher.
On the other hand, if it breaks below this triangle, then we could experience some weaknesses.
The above is the 60 min chart of the QQQ.
As you can see the QQQ is above all 3 rising moving averages.
It is above the 60 min 20 MA, 50 MA and 200 MA. This is a picture of strength.
When QQQ leads the market this is a good sign that the US market will go up. As long as QQQ stays in an uptrend we can expect the US market to continue to move higher.
If QQQ falls, we can look at the green area that I have highlighted as support. As long as the support holds, I think QQQ will continue to grind higher.
The 60 min chart above shows us how the SPX had a nice run up.
It broke above a 60 min consolidation and proceeded to meet its measured move target.
So naturally once it has met its measured move target, it can correct and this is what is happening.
The consolidation area will now be a 1st support area and if it holds, then the SPX will continue to move higher. Resuming the uptrend in the 60 min chart.
On the other hand, if it drops below the 1st support, then we will have to look at the 2nd green area for support.
The above is the weekly chart of the SPX. Last week I think the SPX surprised many after it ignored the warning sign of the weekly topping tail.
Instead of declining, it went up and formed a large green candle.
When an index ignores a topping tail or a bearish candlestick formation, it could tell us that it refuses to go lower.
This week we want to see if the SPX can stay above the top 1/2 of the green candle. If it can do so, then we can expect the SPX to continue to drift higher in the future.
Yesterday I showed you the trend line in the 60 min chart and mentioned that if SPX breaks above the downtrend line then it could go higher.
It has achieved that and is now on the way up.
The green area that I have highlighted would be a new short term support area for the SPX.
As long as the SPX stays above the green support area, then it is very likely that it will continue to move up today and even next week.
The chart above is the 60 min chart of SPY.
It is forming a 60 min cup with handle pattern and if it can break above the handle and stay above the top of the handle, then I think the US market is likely to continue to move higher today and next week.
The SPY is still above the rising 60 min 200 MA so this gives us a bullish bias.
If SPY drops below the handle, then this will signal weaknesses and SPY and the US market might move lower.
What a rollercoaster it has been for the S&P 500. Yesterday the SPX broke below the uptrend line that I have drawn (see yesterday's analysis).
I also mentioned a possible double top.
But SPX managed to find support at the top of the 60 min ascending triangle.
Now it is about to challenge the downtrend line that I have drawn.
Never underestimate the downtrend line. If SPX can break above it, then we could move higher today. On the other hand, if SPX is unable to break above it, then we might have another day of rollercoaster.
One thing to take note of is the XLK that has been performing quite well after the sell off.
The above is the daily chart of the XLK and as you can see, it is now above the daily 20 MA, 50 MA and 200 MA. This is a picture of bullishness.
Notice how it is also making higher lows and also higher highs (I did not highlight it). This is a definition of an uptrend.
I think as long as XLK continues to stay above the 20 MA and 50 MA, then it is very likely to move higher and bring the entire market along with it.
When tech performs well and is one of the leaders of the market, we can be quite sure that the market will move higher.
After breaking above the 60 min ascending triangle reversal pattern and going back above the 60 min 20 MA (red line) and 60 min 50 MA (blue line), the SPX continued to move higher.
It has already met its 60 min ascending triangle target.
Today we can draw a trend line that connect the lows in this 60 min uptrend and use it to gauge the strength of this rally.
My believe is that as long as SPX trades above this uptrend line, then we will continue to move higher.
I don't know if you can see a possible double top in the 60 min chart but we don't want to jump to conclusions yet.
Watch the uptrend line carefully and if SPX continues to stay above the uptrend line, I think we can move higher.
The chart above is the daily chart of AAPL.
It has broken above the highs that it made around April and it still looks strong.
It really has recovered quite a lot since the sell off and it is very possible that the stock might recover all its losses and continue to make new highs in the future.
I must say that Apple has been very smart in introducing cheaper version of the Iphone. Which is the Iphone SE that is nicely priced and according to their US website, it starts at $399.
With many more people staying at home, their ipads and products are also benefiting from this Coronavirus.
When you have a cheaper but reliable phone from Apple to buy, it makes sense that people might put out $400 to buy the phone and this might help to increase the bottom line for Apple.
If we take a measured move target for Apple, the target is around $320.
And as long as it stays above the support area that I have drawn I think it might just make that target and even move to new highs in the future.
And that my friends will be good for the US stock market as well.
Yesterday the SPX made a 60 min ascending triangle and broke out of it. Thus it shot higher. The top of the ascending triangle will be a support area and if SPX manages to stay above this area, then it could move higher.
Watch the 60 min 20 MA as well. That will be the red line. If SPX continues to stay above the red line, then we could see higher prices today.
The daily chart of the SPX shows us that yesterday the SPX made a bottoming tail at the 20 MA.
This is good and if SPX stays above the lows of the bottoming tail, we can go higher in the next few days. This is also where we can say a higher low is being formed and this is the definition of an uptrend.
So far the SPX has made higher lows and this is good as it tells us that the uptrend is still good.
If SPX drops below the bottoming tail, then it could signal weakness in the market.
The candlestick pattern that SPX formed in the weekly chart was a topping tail. This is a bearish pattern and you can see that SPX already drop below the low of the topping tail.
Therefore, this week may start off very weak.
The topping tail, I think appeared because of the amount of resistance on the left. There is supply there that needs to be absorbed.
Will the sell in May and go away materialize?
I think many people are fearing it. Plus I think you may have heard that Warren Buffett was not much of a buyer during this pandemic sell off.
This it raises the question of whether this rally is sustainable or not.
Let us not jump into conclusions that fast.
We had a bottoming tail in the weekly chart 2 weeks ago. As long as the lows of this candle is not taken off, we should still consider the SPX to be trading sideways.
If SPX drops below the low of the previous bottoming tail, then we might move lower and even possibly challenge the March low.
So let us approach this week with caution.
If you are long many stocks, it might be a good idea to buy some put options as protection or short a bit as a hedge for a falling market.
The weekly chart of the Dow Jones also tells the same story like the SPX.
It made a bottoming tail and then last week it made a topping tail. This is just the Dow and not the futures therefore, you will not see the Dow drop below the low of the candle yet.
The same analysis for SPX goes for the Dow as well.
As long as Dow stays above the lows of the bottoming tail, I deem it as a sideways trading to absorb supply from the left.
But if Dow drops below the lows of the bottoming tail then we might be in for a deeper correction.
First of all we do have to realize that the SPX has gone up a lot and there are indeed genuine fears that it might correct.
The 2 hour chart of the SPX above tells us that it is now at the 2 hour ascending triangle top and also the uptrend line. This is a support area and if SPX breaks below it then we may be in for more correction.
Whether we may sell off and go and challenge the lows around 18000 depends on whether Dow can stay above the box area or not.
I have drawn a box on the daily chart of the Dow. That will be our reference point. As long as the Dow trades above the lows of this box we can treat it as trading sideways as it absorbs the supply and resistance from the left.
Apple has reported its earnings and I think today it will gap down by at least 2.5% because the investors do not like Apple's earnings call.
There is lack of guidance from Apple about the near future due to the impact of Coronavirus.
Apple may have formed a variation of the reverse head and shoulders. The lows on the right shoulder should be our reference point.
As long as Apple manages to stay above the lows here then we are likely to see Apple drift back up and perhaps even make new highs.
If Apple drops below the low of the right shoulder we still have the rising 200 MA as a support.
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