Week of August 19th, 2024
SPX climbs 8.6% in 10 days, Powell to speak on Friday
Hi everyone!
Over the past two weeks, the SPX has retraced 78% of its move from the lows, climbing from 5119 on August 5th to 5551 by August 16th. This month has been marked by heightened market volatility, with the $VIX soaring to a peak of 65.73 before plummeting back to 14—all within the same month.
In my SPX analysis last week, I noted that if the bulls could break through 5394, we were likely to retest the 5459 and 5508 levels. The SPX followed through, posting seven consecutive green days and surpassing my 5508 target, ultimately reaching 5551, which coincides with the 78.6% Fibonacci retracement level to close the week.
More notably, the weekly chart reveals that the SPX has essentially retested the rising wedge it previously broke out of and has now re-entered. This sets up two possible scenarios: either an explosive move to the upside, targeting 6000, or a swift decline towards 4818 on a rejection. We saw a failed breakout in July when the SPX attempted to move above the wedge, followed by a failed breakdown in August when it attempted to move below. Now that the index is back inside the wedge, the next move—whichever direction it takes—will be decisive.
We should remain cautious but aware of the possible scenarios and be ready to adapt based on what comes next. I've mentioned this many times before, but the "Buy the Dip" (BTD) strategy remains viable as long as crucial support levels hold. However, if support crumbles, it triggers the initiation of a short trade, which should be maintained until a resistance level is successfully reclaimed. This underscores the importance of adaptability. For those accustomed to habitually buying every dip, swift pivoting is essential when support levels start to erode. Failing to do so might result in surrendering hard-earned gains by persistently attempting to buy dips amidst a multi-day, multi-support downturn. “The trend is your friend.”
SPX Analysis:
Key Levels: 5394 & 5551
SPX back inside the rising wedge on weekly chart.
Bullish Trajectory: If bulls can manage to hold 5394 on dips, price may be supported above 5551 for continuation to 5638 (1.618 extension) and ATH 5669. After the large rally we just had and the highly volatile Jackson Hole event, my preference on longs would be to watch for failed breakdowns rather than chasing long.
Bear Trajectory: This 5551 is the bear last stand area as this is the spot where they need to come in to have us retest the bottom of the wedge towards 5508, 5459, 5394. As such I’d expect a battle here at 5551 or else we will melt up towards 5638 and risk a new ATH yet again. For any real downside continuation, bears need to take out 5394 for a move to 5265, 5179 & 5000.
Summary:
Bulls are currently in control over 5394. Dips likely to be supported above this level. For the trend to shift, we would need to start seeing some closes below this level.
IWM 0.00%↑
All eyes on that 216.83 level, if we start to get a few closes above this, we can likely test 233-235 zone. Bulls have the upper hand above 200.
QQQ 0.00%↑
Same situation as SPY 0.00%↑ except that it is lagging as SPY has retraced 78.6% vs QQQ has retraced about 65%. Both scenarios involve a bear gap / island top gap above that must be taken out for invalidation. Watching 463 level, bulls have upper hand above this level. However, if we start to close below 463 we could revisit recent lows.
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Have a wonderful weekend!
Wishing you a successful and profitable trading week ahead!
Best regards,
Jovan