Can you stomach a 20% drop in the SPX?
Updated
I start off by stating that I do not actively trade in indexes but would like to share my thoughts on SPX similar to what I did with DJIA.
The SPX has had an incredible run since March 2020 (2194) to the high of 4808 made at the beginning of the year. What were the reasons for this?
1) Low to no interest policy of the FED
2) Optimism of recovery from Covid and vaccine discovery.
3) Free money being available and a lot of amateur traders getting into the market
This Index however has run out of steam. Technically speaking, there are massive reversal signs that are in play since May 2021.
1) Weekly Overbought on RSI
2) RSI Divergence on the weekly chart
3) Head and shoulders pattern complete
On a fundamental side we have:
1) Interest rate increase to combat inflation
2) The China lockdown
3) An energy crisis
4) The sad invasion of Ukraine
The year long consolidation between 4500-4800 is a dire warning that the market is in consolidation for a big move. It is very unlikely to be up and we are looking at the initial levels of 3400.
If the consolidation lasts for a few months, these levels will not hold and we will see a bigger drop. There is no timeline on the weekly chart, but let's revisit this chart in July, October 2022 and January 2023 to see where the market is at.
The SPX has had an incredible run since March 2020 (2194) to the high of 4808 made at the beginning of the year. What were the reasons for this?
1) Low to no interest policy of the FED
2) Optimism of recovery from Covid and vaccine discovery.
3) Free money being available and a lot of amateur traders getting into the market
This Index however has run out of steam. Technically speaking, there are massive reversal signs that are in play since May 2021.
1) Weekly Overbought on RSI
2) RSI Divergence on the weekly chart
3) Head and shoulders pattern complete
On a fundamental side we have:
1) Interest rate increase to combat inflation
2) The China lockdown
3) An energy crisis
4) The sad invasion of Ukraine
The year long consolidation between 4500-4800 is a dire warning that the market is in consolidation for a big move. It is very unlikely to be up and we are looking at the initial levels of 3400.
If the consolidation lasts for a few months, these levels will not hold and we will see a bigger drop. There is no timeline on the weekly chart, but let's revisit this chart in July, October 2022 and January 2023 to see where the market is at.
Note
April 23 - S&P 4271April 29 - S&P 4131
Change in 1 week - 3.2%
You were warned :)
Related publications
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.