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PUBLIC: Recent Action in the Market

Here is a weekly chart of the SPY with the 2017 channel in white dominating the landscape.  Note how price stayed inside the channel until the January 2018 run up?  Note how the bottom of the channel was support.  Note how we are still inside the channel.  Also note the 3 red arrows on the left hand side of the chart.  They all point to “low volume nodes” in the volume profile.  These areas tend to act as support or resistance to the price, especially the first time they return to the area.  The middle red arrow is where price bounced on February 9th during the downtrend.  It may act as support if price returns, but there are other technical support areas in that same area besides just the low volume node.  Carefully note where the other red arrows are located to anticipate where price may find resistance or support in the future.

A weekly close above the channel would be a good signal to consider that price wants to move higher.  Let’s take a closer look at the 2018 action in a daily candlestick chart for more immediate discussion on price.

Remember, you can right click and “open in new tab” the charts for reference while you read my commentary.

This is the daily candlestick chart for the SPY since 2018 started.  The run up ended January 26, and the downturn ended February 9th.  We then peaked on February 27th on the rebound from the recent lows.  That was predicted here in the blog with the analog published for members only.  12 of 19 days in February saw price close BELOW the 50-day moving average (the white dashed line).  Remember, “nothing bad happens when price is ABOVE a rising 50-day moving average.”  Well, the 50-day moving average is still rising (barely), but price isn’t above it yet.  The 50-day is also running very close to the top trendline of the white 2017 channel, just as the red dashed line (200-day moving average) is running near the lower trendline of the 2017 channel.  For many mutual fund managers and long term investors, the 200-day moving average is the filter between being in an up vs. down market.  Something to keep in mind moving forward.

On a more technical note, and more of an “this is interesting” tidbit…there are many, many traders out there using a Fibonacci retracement system for intermediate or swing trading.  Feel free to look in the web for more information about these “magic numbers” some investors swear by.  The big number many devotees of this system look at is the 61.8% retrace level.  So, let me walk you through their thinking so you understand why higher prices may be on the horizon in their system.  The downdraft from Jan 26 to Feb 9 created a 350 point change in the market (S&P500).  The bounce (or retracement) starting on Feb 9 moved HIGHER than the 61.8 level of that 350 point drop no matter how you calculate that line (of course, there are variations on this system…hence the “magic”).  Price struggled to move above those levels in the middle of February, but finally closed definitively above all of them on February 26th.  Once this violation occurred, a bullish retracement calculation is made and I have placed it on this daily chart in teal blue.  The recent move down turned back up BEFORE violating the 61.8 line near SPY $263.  In a Fibonacci trader’s mind and system, this price pattern indicates price should move higher to roughly $285 challenging the late January 2018 highs.  Is this a magic system that works without fail?  No, but I’ve seen it used successfully by many traders, so I’m not here to discount it–but I did want to make my readers aware of how a large contingent of traders are currently looking at the market given how common this retracement system is.

  1. Given the level of the 50-day moving average, I am watching price with great interest here for rejection by the 50-day again.
  2. Given the 61.8% level that held near SPY $263, I am watching that area with great interest.
  3. In comparison to the three analogs I have posted (one in public, two in private), the February 27th high matches one analog so I am watching that level with great interest as well.
  4. Given the Fibonacci target of $285, that general area lines up with another of the analogs posted in private, so I am watching that level with great interest.
  5. And finally, the 2011 analog posted in public isn’t quite on track, but new highs by 3% or so would give that analog new life as the other two are NOT looking for new highs other than perhaps a “look above and fail” to quote a mentor of mine.  I certainly do not think the 2011 analog is dead because markets are never exactly the same, but they do rhyme.  Seeing a new high shortly followed by some indicision near those highs would put that analog back in the lead seeking about a 3% rise before falling back as shown in the post linked near the beginning of this paragraph.

My summary?  Looking to the upside makes some sense if price can clear the 50-day moving average and close above it seeking $279 and then $285 as potential targets.  Looking to the downside immediately only makes sense if price pushes above the 50-day and gets rejected with a close back below it either the same day or a few days later.  Note the candlestick wicks on Feb 16, 20, 21, and 22 above the 50-day moving average where price moved up but couldn’t hold the advances.  Long top wicks to candlesticks are subtle signs that sellers are in charge, while long bottom wicks (like on Feb 9) are a not so subtle sign that buyers are in charge.

I hope you enjoyed this write-up of a few ways to look at how the market is shaping up.  I’m not trying to predict anything…just trying to show readers some ideas of how to approach the market on a shorter basis than as a long term investor.