On Thursday, the S&P 500 index opened round 3500, which is a reasonably vital stage. That worth level represents a 50% retracement of the 2020-2022 bull market section.
Was I stunned to see a bounce off the 50% retracement stage? Completely not. As Katie Stockton shared on The Closing Bar this week, it will truly be shocking if the main averages had not bounced greater off this stage.
After gapping decrease at Thursday’s open, we noticed a fast acceleration to the upside. Thursday’s rally pushed the S&P 500 proper again above 3600, inflicting many buyers to announce their renewed optimism in a broad market restoration.
However what a distinction a day makes…
Tremendous excited to announce our upcoming FREE webcast from Market Misbehavior referred to as The Market Backside Guidelines Revisited, developing on Tuesday, October 18th at 1pm ET.
Again in June, we revealed our Market Backside Guidelines together with ten key objects to trace because the markets transfer decrease. This time, we’ll revisit these ten guideposts, replicate on the present market circumstances and relate all of it to the seasonal power prone to happen in November and December.
Join HERE and do not miss our newest free webcast!
Friday started with a spot greater and the S&P 500 briefly teasing the 3700 stage. However, via the course of the day, shares have been transferring steadily decrease. Many charts had rotated from a bullish candle sample to a bearish candle sample.
This is the QQQ after Thursday’s session:
Be aware how the newest candle’s physique “engulfs” the open-close vary of the primary candle? There’s the bullish engulfing sample, which signifies a powerful chance of additional upside.
However after Friday’s selloff, the charts appeared like this:
Now we’ve got the dreaded “darkish cloud cowl” sample, the place we’ve got a giant up day adopted by a giant down day. Day two doesn’t go under the primary day’s open, however it does attain at the very least 50% of the way in which down the actual physique of day one.
Be aware to candle purists: Is that this sample actually extra necessary when it occurs in an uptrend? Completely. However for me, Friday’s candle exhibits a extreme lack of follow-through from Thursday’s rally, and that is what’s most necessary right here.
So as an alternative of the markets ending this week with a bullish exclamation level, a powerful up day asserting to buyers, “Sure! We are actually in a bullish section!!”, we as an alternative have the main averages whimpering into the weekend able of weak spot.
And this occurred everywhere with particular person equities. This is the chart of TSLA.
On this case, we’ve got a bearish engulfing sample, the place the second day’s candle fully engulfs the actual physique of the primary day’s candle. So all of the optimism proven for TSLA on Thursday was unwound — after which some. And should you suppose the motion of mega cap shares haven’t got an extremely massive affect on our main benchmarks, suppose once more!
One other observe to candle purists: Would this be a extra superb candle sample if it occurred throughout a raging uptrend? After all. However as we talked about above, the important thing right here is the shortage of follow-through after Thursday’s rally.
So the place does Friday’s session go away the inventory market as we put together for subsequent week?
My “Wrap the Week” chart (which I characteristic each Friday on The Closing Bar) exhibits a well-known sample, with the US Greenback ending the week within the constructive whereas actually all the opposite main asset courses are within the adverse. That is proper, the Greenback has as soon as once more earned its moniker as “the wrecking ball for danger belongings”.
Can the market rally subsequent week? Completely. Something is feasible. However given Thursday’s inflation numbers and Friday’s selloff, I’d are inclined to observe the steering of my Market Pattern Mannequin, which tells me to focus extra on capital preservation over capital progress. Now could be the time to stay vigilant, to give attention to danger administration, and to maintain a cautious eye open for telltale indicators of a market backside!
RR#6,
Dave
P.S. Able to improve your funding course of? Try my YouTube channel!
David Keller, CMT
Chief Market Strategist
StockCharts.com
Disclaimer: This weblog is for instructional functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your personal private and monetary scenario, or with out consulting a monetary skilled.
The writer doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the writer, and don’t in any approach signify the views or opinions of another individual or entity.
David Keller, CMT is Chief Market Strategist at StockCharts.com, the place he helps buyers decrease behavioral biases via technical evaluation. He’s a frequent host on StockCharts TV, and he relates mindfulness methods to investor choice making in his weblog, The Aware Investor.
David can also be President and Chief Strategist at Sierra Alpha Analysis LLC, a boutique funding analysis agency centered on managing danger via market consciousness. He combines the strengths of technical evaluation, behavioral finance, and information visualization to determine funding alternatives and enrich relationships between advisors and purchasers.
Study Extra
