Prolonged period of selling ahead?
Updated
Last Thursday, we highlighted a rally in the Chinese stock market, with the Hang Seng Index rising as much as 3%. In addition to that, we speculated about the potential relief in SPX, with emphasis on resistance near $4,335 (which failed to be taken out). Today, we want to draw attention to Chinese stocks again. The Hang Send Index fell approximately 3% overnight, erasing last week’s attempt to move higher. Besides that, we are starting to notice gold and the U.S. dollar behaving similarly to last year during an extended period of selling pressure (when gold was moving lower with stocks and the U.S. dollar was strengthening). In our opinion, the environment is changing, and we could be in for a resumption of a prolonged selling period (potentially transposing to a market crash).
We maintain the view that we have seen one of the most deceitful bear market rallies in stocks and cryptocurrencies over the past year. Interestingly, during that time, many people began to relax their stances in expectation of a soft landing. However, we have been skeptical about the FED’s ability to deliver one for a while. In fact, we have been more inclined toward a scenario with the U.S. economy sliding into recession, which continues to be the case. In the coming weeks, we will pay close attention to unemployment, which will pretty much guarantee recession if it rises another 0.6% (considering the fact that each 1% rise in unemployment coincided with a recession since the 1940s). On top of that, we will observe the situation in the real estate segment and the performance of the manufacturing and services sectors.
As for technicals on the daily chart, we will watch DM+ and DM-, which we want to see diverging, with ADX rising simultaneously (suggesting a bearish trend is growing in strength). Furthermore, we will also look at RSI, MACD, and Stochastic, which we want to see pointing to the downside (their reversal to the upside will be bullish). In regard to price levels, we will pay close attention to support near $4.261 and resistance near $4,335.
Technical analysis gauge
Daily time frame = Bearish
Weekly time frame = Bearish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
We maintain the view that we have seen one of the most deceitful bear market rallies in stocks and cryptocurrencies over the past year. Interestingly, during that time, many people began to relax their stances in expectation of a soft landing. However, we have been skeptical about the FED’s ability to deliver one for a while. In fact, we have been more inclined toward a scenario with the U.S. economy sliding into recession, which continues to be the case. In the coming weeks, we will pay close attention to unemployment, which will pretty much guarantee recession if it rises another 0.6% (considering the fact that each 1% rise in unemployment coincided with a recession since the 1940s). On top of that, we will observe the situation in the real estate segment and the performance of the manufacturing and services sectors.
As for technicals on the daily chart, we will watch DM+ and DM-, which we want to see diverging, with ADX rising simultaneously (suggesting a bearish trend is growing in strength). Furthermore, we will also look at RSI, MACD, and Stochastic, which we want to see pointing to the downside (their reversal to the upside will be bullish). In regard to price levels, we will pay close attention to support near $4.261 and resistance near $4,335.
Technical analysis gauge
Daily time frame = Bearish
Weekly time frame = Bearish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
Note
The market is reaching oversold levels in the short term. The rebound is likely unless the market weakness starts transposing into a fast crash. In the case of a rebound, we would look for a retracement to Resistance 1 and slightly below Resistance 2. We will update our thoughts in the process.
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.