Aye aye aye, one look at MarketWatch‘s front page this morning and it’s Trade War overload. What’s more, the public is reading about bull traps, bear traps, shattered uptrends and a ‘sell the news’ event out ahead, post-trade deal. It’s all pretty mind boggling.
- The US stock market’s uptrend has been shattered, according to technical analysis (Man who stares at charts alert)
- The US stock market is Setting two traps for investors (Man who stares at charts – and sees bull and a bear traps – alert)
- Prepare for a ‘sell the news’ scenario once a U.S.-China trade deal is signed
There are other articles aplenty and they are overwhelmingly laser focused on the Trade War.
As for the S&P 500 itself, what does it think? So far, not much. It is due to open this morning at the SMA 50, which is so damn normal and on the face of it healthy, it’s a complete non-event. As for the “shattered” uptrend, I repeat to you once again that all trend lines break eventually. I’d prefer to use a term like ‘SPX has eased out of an extreme uptrend’ as opposed to “shattered”. That is inflammatory wording. What’s important are the SMA 50 (2858), the gap below it and the old 2815 resistance (now support) below that.
Anyhoo, of bearish note the recent (temporarily at least) failed SPX top-test did accomplish the goal of filling a pesky gap (see the little red dot). That concerns me because it was hanging up there like a ripe apple waiting to be picked. Now it’s gone and one wonders if SPX has any more ‘must do’ objectives left up its sleeve. Again, we note those blue rotten apples down below.
The ‘sell the news’ article anticipates new highs once a trade deal is done and then a classic ‘sell the news’ event. Sounds very plausible, but so too does the first man who stares at charts’ theory that the market has already gone bearish. The man who stares at one chart and sees both bull and bear traps was of less help.
This man who is writing to you now stares at the weekly chart of SPX and sees a mini bull trap already sprung at the recent fake above and whipsaw below resistance and the potential for a massive bull trap at point 5 of the theoretical Reverse Symmetrical Triangle. He also sees the weekly gap in confluence with the rising EMA 20 and the 2815 area support noted above. All the while he keeps in mind that the top-test failure is a failure until it proves otherwise. So this man who stares at charts is not giving you much that is micro-term actionable; I admit that freely.
The market is not broken by any means. It had been at high risk as indicated by the VIX charts we track in NFTRH, among several other indicators.
But technically it is intact against a highly inflammatory geopolitical/geoeconomic backdrop. On the big picture (in my opinion) it remains at significant risk of correction, but on the micro-term very little bearish has actually gone on. Over-bullish sentiment needed a cleaning and that is what is happening.
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