Week of July 22nd, 2024
SPX puts in the first red week since May & the bears come out. Big earnings week ahead.
Hi everyone!
Volatility returned this week as we reached the 5630 target of the wedge pattern we've been tracking for months. This marked the first red week since April 2024. Additionally, a clear bearish engulfing pattern has appeared on the weekly chart, the first since the beginning of April 2024.
As I've emphasized for months, the narrative follows price, not the other way around. You can see that SUDDENLY when we have a red week, voices like Goldman Sachs are cautioning against buying the dip and predicting an imminent correction. Just last week, these concerns seemed irrelevant amidst enthusiastic projections, including AI driving $NVDA towards 6 trillion and SPX soaring to 6000.
This seasonality chart below shows a large dip in end of July followed by a sharp rally in August in election years since 1950:
While I can obviously point out the bearish rising wedge (as I have for months) and the bearish engulfing and shooting star candles, I’m sure everyone else is already doing that so I am posting this chart for awareness and an alternative perspective. I’ve said for months that as long as the SPX is above 5179 bulls are firmly in control and the bias remains that dips will continue to be bough. If and when 5179 is breached to the downside, there would then be a short opportunity for multiple months.
SPX Analysis:
Key Levels: 5494
I will say that I think everyone is looking for at least a gap fill at 5375 and I am not so sure we will get it. As you can see in the photo below, this appears to be a nice channel for SPX where the bottom of it is 5470-5480. It’s likely we get a sizeable bounce there; however, we could see a failed breakdown of this channel where price could trade below and rapidly recover back into the channel.
Bullish Trajectory: If bulls can manage to hold 5470-5480 area, we could bounce back up to 5589 and into the 5700’s completely reversing this bearish engulfing (as we have done many times before):
Bear Trajectory: Below 5494 we retest 5434 and can setup for a gap fill of 5375. If we were to breach 5375 then we would target 5265 below.
Summary:
Bulls remain in control in the overall picture, and we could potentially be in this large bullish channel since the October 2023 low. Any dips to 5434 that are bought continue to lean towards a bullish bias for continuation higher into 5700+. If 5434 falls, then the last defense will be that gap at 5375 which is preferably not filled for the bullish continuation. Notice that a gap was also left ABOVE at 5639.
Longer term, there is no “swing” short case yet unless 5179 where to fall. Below 5179 we would be swinging shorts as there would be a large failedbreakout to trade. For now, we are in an obvious uptrend with consistent higher highs and higher lows.
IWM 0.00%↑
Finally, we got a decent move here that took us from 200 to 225 before finishing the week with a shooting star candle. Weekly squeeze yet to fire, looking at this 208-210 area if it holds for continuation higher.
QQQ 0.00%↑
Just like SPY, a sharp rejection at the 1.618 fib extension and back into the wedge. Unless 494 is reclaimed, we could continue to see rallies be sold or at least for this to trade sideways until it makes a new swing low within the wedge.
TRADE ALERTS:
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Here is the economic calendar for next week:
Earnings calendar for next week:
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Have a wonderful weekend!
Wishing you a successful and profitable trading week ahead!
Best regards,
Jovan