Market Analysis

Bounce!!

By on • ( 26 Comments )

Sharing is caring and in this spirit I wanted to share some technical insights into this week’s market bounce following the aggressive flush down last week.

As of late I’ve been hearing more and more people throw their hands up in the air and declare that technicals no longer work in face of some of the historic price action we’ve witnessed in markets in the past year. It’s all about printing I hear. And it’s true we have distortions in markets and broken relationships courtesy of central banks printing.

After all liquidity injections have consequences according to Fed governor Kaplan:

Dangerous truths his boss Jay Powell continues to deny, as yes, the Fed is partially responsible for the current stock mania:

Best to just keep printing and make the mania and wealth gap even worse.

Yet despite all the distortions the market offered a technical master class this week and the precision of it all is something to behold.

Let me explain.

In my experience confluence of multiple factors interjecting at the same time often prove to be the most important tools for technical traders to assess shifting risk and reward and identify key price pivots. It’s akin to finding all the various puzzle pieces and sorting them for relevance.

And what happened Friday and into Sunday night in futures trading was monumental in this respect as multiple key factors came together at exactly the same time.

First off we knew about about one key pivot in advance, it was the basic 50 day moving average reconnect that was overdue and it was the playbook from the year 2000 that called for a 50MA reconnect by the end of January, something I’ve discussed back in early January and highlighted again this weekend:

And indeed we got the 50MA reconnect into the end of January:

But why the bounce? Just because of the 50MA reconnect? No, there are a lot more factors at play.

One other key factor was the $VIX gap fill at 37, part of the very gap constellation outlined as a check list in December:

Gaps are key pivots and seeing $VIX fill the final gap on Friday suggested a counter reaction was lining up, and it did as $VIX reversed precisely from there:

That gap filled on Friday, but Sunday night futures dropped further. Why? Another important check point was ready to be ticked off, a key trend line tag and I highlighted it as a key save or break moment at the time:

And the save reaction off of the trend line has been impressive:

If we zoom in on the daily chart we can note not only the precision of the trend line tag, but also the supporting confluence with the November 9th highs and the early January lows:

This is as close to a technical bulls eye as you get.

So in summary: We had a 50MA tag, we had the final $VIX gap fill, a trend line tag while intersecting with a previous high and a previous high turned support level.

In short: 5 points of confluence interjecting virtually at the same time. And not only on $ES, but also the $DJIA hitting the same support level at the same time:

And now the bounce precisely off of that support zone:

I offer all this to highlight how the bounce from these levels has made perfect technical sense. Without understanding these technical puzzle pieces one is flying blind and I submit it is abundantly clear that markets continue to respect technicals and hence traders must as well or get caught offside in a major way. This applies to the buy side as well as to the sell side.

In terms of what is next: Gather your puzzle pieces. The 2000 example says new highs. The current technicals say show me as the battle for price control is ongoing and new highs haven’t been made yet, hence it is critical to understand the price pivots that determine who is in control and when.

Bulls have managed a sizable bounce off of key pivot support confluence. Now sustained new highs are needed for any further downside would risk a break of the now confirmed rising trend line of support. As long as this trend line holds this rally is intact, but should it break the nature of this market could changed profoundly and rapidly. Our job is to continue to evaluate to evolving picture and react accordingly.

What is clear for now is that markets just offered a technical master class and a teaching moment for participants.

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Categories: Market Analysis

26 replies »

  2. Hi Sven, thank you for this!
    I learned a lot again.
    Take good care and continue to highlight the role of the FED in all this mania (or clownshow). By the way: Markus Koch used your sentence this week in his stream (circus maximus and clownshow).

    Reply

  5. Great technical analysis Sven. I congratulate you on changing your tone a bit towards the bullish side. Nice to see that.

    “TOP”

    Reply

  6. Hi Seven, thanks agai’ for a timely post. You mentioned new highs probably. If you take the SPX since the March low of 2020 and compare it with what happened after the 2009 low and even thee August 1982 low, you get an astonishing strong correlation (above 0.90). In one case it reached a higher high, not in the 2nd. But this preceded a volatile/flattish mkt for a few months. Keep up the good work!

    Reply

  7. with all do respect the fucking fool fed steps in sunday night and buys like a whore in a bar all the futures were down huge the 50 and trend line has nothing to do with the markets it is all the fool scum bag fed heads buying forget about any thing you learned in the past 30 years of trading fed balance sheet and spy every thing else is 100%%%%%%%%%% garbage

    Reply

    • I agree.

      The Federal Reserve, Blackrock and Goldman Sachs hate volatility.

      Buy the $VIX and stick it to the greedy heartless elite scum bags.

      Reply

    • Could it not be to do with both? The feds are aware that technicals matter (at least to some people) so their proxies stepped in to save important levels and reduce the risk of a down move. Personally I think there is a huge amount of fed inspired meddling in the markets, amplified by traders – professional and others – who play to that. US markets are likely to grind higher until this systemic interference fails, whereupon there will be a precipitate drop – but that may not be for months or even years.

      Reply

  10. Thanks Sven, great article, as always.
    “People keep protesting at wrong buildings”…… Agree, Middle & Lower class most know what really is happening, maybe the distribution of simple propaganda in simple words in their neighborhoods will be the solution

    Reply

  11. Maybe some “Robinhoods” can inform by simple propaganda in each Town or neighborhood how The Fed-Congress-Corporations-Israel have destroyed the USD creating billions for them without working at zero rates, meantime Main street struggle to survive paying inflation, taxes, and high credit rates.
    The Fed most not be audited, most be destroyed

    Reply

  12. The rising dollar was supposed to impact stock prices. All that matters is Fed printing.

    At a certain point, each QE got priced in.

    The question is: Is QE infinity priced in yet?

    Reply

  13. Cup and handle break out (and new high) taking place in XLK.

    This will be the final cup and handle which will breakdown and represent the end of the stock market.

    Look for XLK price to drop below $133.09 to signify a cup and handle failure.

    Reply

  14. So sad to see the billionaires unloading their shares to the kids. Maybe one of your kids.

    Please tell them to stop buying.

    Please share widely.

    Reply

  20. The budget resolution passed, so another $1.9 Trillion of “free money”:

    $1,400 direct payments
    A $400 per week jobless benefit through September
    $350 billion in state, local and tribal government relief
    A $20 billion national Covid vaccination program
    $50 billion for virus testing
    $170 billion for K-12 schools and higher education institutions
    A $30 billion rent and utility assistance fund

    Plus if we give $50,000 to students for loan annihilation, that adds another $1 Trillion of “free money”!

    Trillion is the new Billion. Looking forward to having “$100,000 USD bills so I can get a cup of coffee in 20 years at Mcdonalds. I’m betting the put J-Pows face on the future $100,000 bills…

    All the previous civilizations could not get “free money” to work, but this time is different, right???

    Reply

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