Stock Market Analysis October 30 2018

As we close out the month of October 2018, what is in store for us? Let us take a look at the charts and see what they might be telling us.

The main thing to take note here is that the stock market is quite oversold from a weekly point of view. Therefore, the question is, will the stock market stage a rebound? Also, we want to figure out if there is another sell off before the market bottoms.

Let us start off with the weekly chart of SPY. As you can see, the SPY is quite oversold in the weekly chart stochastics. Notice how the sell off is reaching a support area in the weekly chart as well. This oversold situation gives us a hint that a bounce may happen. A reversal might also happen.

But the problem with sell offs is we just do not know when it might end. Therefore, we need to dig down into the smaller time frames to help us pinpoint a possible bullish reversal. A reversal in the smaller time frames can give us hint to a reversal in the bigger time frame.

It would be best if the oversold situation in the weekly chart forms some bullish reversal candlestick pattern in the weekly chart such as having a weekly bottoming tail. Then the likelihood of reversal happening increases.

As we zoom into the SPY's daily chart we can see that things still look quite bearish. I mentioned in my previous post How Far Will The Dow Jones, Nasdaq And S&P 500 Fall This Time? October 2018 that there is a possibility that Dow, Nasdaq and SPX might fall further to reach a measured move target.

If that is the case we might have more selling before any thought of bullish reversal might materialize.

There are a few reasons why we should be careful:

The S&P 500 is still below the daily 20 MA
A measured move target has not been met yet
There is no break of a downtrend line in the daily chart

While a measured move target is helpful to let us anticipate a reversal point, do remember that it is only a target. Sometimes it is met and sometimes the market may only come near to it.

My confidence of a bullish reversal in the daily chart will grow when S&P 500 trades back above the 20 MA and also break above the daily downtrend line.

If we dig deeper into the 60 min chart of SPY we can see that the SPY is still in a very negative downtrend. It is still making lower highs and lower lows. You can also see that the SPY is below the declining 60 min 200 MA, 50 MA and 20 MA. A bearish environment which is why every rally is met with a decline late in the day or the next day.

What we really want to see is this:

A decisive break above the 60 min 20 MA and 50 MA
The 60 min 20 MA going back above the 50 MA
A break above the 60 min downtrend line

With each of this happening the possibility of a bullish reversal happening grows.

Catching a bottom is not easy. Trading is also an art rather than a definite science. Sometimes things work and sometimes things do not work. We need to be humble and always have stop losses and a trading plan.

Have a great trading day!