Note: Below is the Daily Market Brief sent to clients on Sunday March 25 prior to futures open assessing technical risk levels and directional strategy in context of high volatility and uncertainty for the coming days as we approached markets from the long side following last week’s correction.
A Sunday Brief today instead of a Monday brief tomorrow as a lot could happen between futures open tonight and tomorrow open and I want to be able to focus on positioning. The recent action in price has soured sentiment in a big way and I see a lot of 1987 analogs out there due to the Thursday/Friday flush and the concerns are that we will see follow through on Monday. With a lack of buyers and a sudden avalanche of global equity supply a possibility I can’t dismiss the notion of a larger flush still before the end of the month and quarter.
At the same time I would not be surprised to see an aggressive rally emerge. If this is a bear market in the making recall that bear market rallies can be extremely violent to the upside and I want to be ready for when that happens.
My strategy remains the same, which is to position for an April rally. That’s the primary mission this week and hence I want to focus this week’s briefs on charts and technicals.
I’ll address the upside targets once we have a confirmed low in place and hence for now let’s focus on potential downside levels that may of interest in terms of support.
You all have seen this chart which has a fib level at around 2550:
This is an extremely important level should we get to there as it also matches the weekly 50MA at 2554, a key historic pivot.
Also nearby is the daily 250MA at 2544 which hasn’t been tagged since the US election.
These are 3 technical confluence factors that I’m keen on pressing long against should we see a quick flush to there.
For now we have to recognize that, despite all the noise and fear, no new lows have been made at this point. $SPX is basically on an inside month.
Indeed the November 2016 trend line is still holding as of Friday’s close while the RSI dropped below 30:
Could we see a dip into 2544-2555 and bounce from there showing a fake break below the trend line? Sure, especially if it happens in overnight. One can’t even see the 100 handle drop during the US election on the cash chart.
So it’s very possible hence my brief today.
Note the recent action also has formed a potential “M” pattern. There’s something called an M+A pattern which we are potentially setting up here as well which would also fit with my April rally scenario before we hit much lower prices in the summer.
Added: This is in essence the concept Mella outlined with her chart on public twitter yesterday which I have shamelessly ripped off of her. She sees things.. 🙂
— Mella Andrews (@Mrs_Northy) March 25, 2018
$SPX is 10% off of the highs as of Friday’s close and the question is how much lower do we go here first or at all before the next rally commences.
To this end here’s an $ES chart with support levels using the US election low as the reference:
Several things to note:
The .382 fib is at 2553. So we actually have 4 points of technical support confluence in the 2544-2555 zone and we have February lows just below that in the 2528-2530 zone.
Just below that is the quarterly 5 EMA at 2506 a tag which is of course way overdue:
All of these technical support zones are within a 2-3% price range lower from Friday’s close. Not that dramatic.
More dramatic would be a further flush into the next fib level which is at 2453 and is matching Mella’s original bear flag target of 2450.
Below that is the .618 fib at 2353 which would constitute a 20% correction off the highs and is a likely target later this year as is the 2200 zone Mella has outlined which is also the .786 fib.
Bottomline: We need to be flexible here and keep a very open mind and pick our battles.
As I’m writing this I have no indications of a major flush in the works, but that could change quickly when futures open tonight and I want to be prepared to react.
Nobody will ring a bell when the low is in, hence, if new lows are coming, they can flush it deep and bring it all right back up. So it’s tricky.
I posted a few public tweets today to check twitter sentiment a bit, and sentiment clearly seems to be leaning bearish.
2 charts that leave room for a sizable bounce coming are $NYMO ad $BPSPX as they both suggest a 2015/2016 repeat may be in the works as they both show similar potential positive divergences in the making:
And if this is the case I can certainly make the case for this roadmap:
2750 gap fill in April seems likely, 2850 would be an insane bounce, but hey, nothing is more vicious than bear market rallies.
An outside chance fun scenario would be a big gap up on Monday leaving a lot of folks scrambling to cover and chase given all the negative sentiment. But that’s speculative.
I’m open to either scenario, but I also know where I want to lean long if our stops are taken.
Reminder: This is a shortened week as Friday US markets are closed. That leaves 4 trading days for month end and quarter end mark-ups.
The motivation to get something done could be high considering the year to date performances so far:
Bottomline: While I selfishly would prefer a gap up and run, I’m completely open to a deeper flush first which will get us deeper oversold conditions. The 2550 zone is only another 1.5% lower from here and I think I’ve outlined a total of 4 technical confluence support zones here that would suggest it being strong support.
I’ll be around for futures open tonight and Europe open tomorrow should markets sell-off further and I’ll update the Dashboard as needed, but no separate brief tomorrow.
All content is provided as information only and should not be taken as investment or trading advice. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. For further details please refer to the disclaimer.