Next Leg Down
Earnings season has kicked off and economic data began to roll in today - it all looks pretty horrible on the retail / consumer / home builder front. In fact, the data was so bad that the market couldn't ignore it.
Up to this point, the market has been extremely optimistic as the virus began to plateau and the Fed intervened with unprecedented stimulus measures. Greed took over fear the past couple weeks as Wall Street became unanimously bullish (classic). We can see the market reaching with multiple gaps on the chart, hitting the 50% retrace on low volume and bearish divergence on hourly. However, we're not out of the bull trend just yet.
Tomorrow, we have jobless claims, housing starts, building permits and manufacturing data which are most likely going to be as bad as the data we received today. If so, expect a gap down at the open. If not as bad as we expected, then potential for a double top before heading lower and starting the next leg down. A break below $2,720 support would be encouraging for bears, but I'd be more convinced if S&P broke $2,700. From there, we'll be on our way to re-testing the lows which I believe will most likely take out the previous low. We're currently pricing in a v-shaped recovery that won't happen and only beginning to understand the severe damage being done to the economy. We'll see more analyst downgrades, mass bankruptcies, dividend suspensions, poor economic data, etc. that will weigh down the market and ultimately lead to capitulation and a bottom.
Up to this point, the market has been extremely optimistic as the virus began to plateau and the Fed intervened with unprecedented stimulus measures. Greed took over fear the past couple weeks as Wall Street became unanimously bullish (classic). We can see the market reaching with multiple gaps on the chart, hitting the 50% retrace on low volume and bearish divergence on hourly. However, we're not out of the bull trend just yet.
Tomorrow, we have jobless claims, housing starts, building permits and manufacturing data which are most likely going to be as bad as the data we received today. If so, expect a gap down at the open. If not as bad as we expected, then potential for a double top before heading lower and starting the next leg down. A break below $2,720 support would be encouraging for bears, but I'd be more convinced if S&P broke $2,700. From there, we'll be on our way to re-testing the lows which I believe will most likely take out the previous low. We're currently pricing in a v-shaped recovery that won't happen and only beginning to understand the severe damage being done to the economy. We'll see more analyst downgrades, mass bankruptcies, dividend suspensions, poor economic data, etc. that will weigh down the market and ultimately lead to capitulation and a bottom.
Note
Looks like we're taking the second scenario and moving a little higher before the inevitable fall next week. The market always moves further than everyone thinks to create the capitulation and fomo feelings that mark the end of the trend, so I wouldn't recommend chasing this rally! We're definitely going to see lower prices soon as we're hitting major resistance ahead and there's not much good news left in the short-term to prop up these ridiculous prices. Stimulus and anticipation of re-opening the economy are out of the bottle. When the market falls, it'll fall fast as everyone will remember the pain felt during the first leg down and fear takes over greed. Opening a short position on SPXS or a similar inverse ETF is probably a decent move if you hold until the next leg down, which will most likely start next week. Since we can't call the exact top, it's a similar concept to buying low (since we can't call the exact bottom) and holding through this recession, which I think everyone can agree is a decent move.
We'll see what news we get over the weekend and look forward to Monday. Enjoy the weekend!
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.