The S&P 500 cash index took out the previous week’s low at open on Monday and then immediately rallied off the low to form a very bullish intraday trading on Monday. Tuesday’s gap up open produced a buy signal on the daily cycle level. Last Monday the Fed chairman stated that the Fed will be buying individual company bonds, which is just one step short of buying stocks directly. The unprecedented monetary policy gave market participants an impression that it’s a win win trade. If the re-opening is doing well, the stock market and economy are all fine. If the re-opening is not doing well, the Fed will be the backstop. The Fed is buying lunch for everyone. That could be a dangerous mentality. The market can turn on a dime when you are mostly comfortable with risk taking.
The NASDAQ didn’t take out 2019 low during the March crash that didn’t produce an outside reversal on yearly level. The Dow and S&P 500 both took out 2019 low during the March crash and produced an outside reversal on yearly level, which has never happened since 1792, the beginning of the US stock market. The NASDAQ has made a new high in this current rally. It just seems to be impossible for the Dow and S&P 500 to make a new high this year after an outside reversal yearly bar has been made. Plus COVID-19 and presidential election are two major uncertainties that the market has to contend with.
In order for the 4th daily cycle to continue to move up, the S&P 500 has to hold last week’s low at 2965.66. The longer term weekly cycle indicator is still bullish. The upper white channel line will be the resistance for this swing. In our timing model, this weekly cycle high could be made before the end of June. The weekly cycle correction will start after the 4th of July holiday which could last until the end of the presidential election.
It has been 4th day into the 4th daily cycle. If the low of 2965.66 holds, we can expect the market to stay in the low to high daily cycle trading phase in the next 11-14 trading days, which will last until right before the 4th of July holiday.
Please remember this is our current expectations how the market will play out. We don’t blindly trade on the forecast. We wait for the market to present confirmation on daily, sometimes intraday charts to pin point the exact location of a top and bottom.
Please rest assured that we will send out emails immediately if the trade signals are confirmed.
Stay well and good luck.