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The US equities, particularly the S&P 500, has hit a zone that we have been speaking about, and watching with a large degree of interest, in the Equity Guru Discord channel. There has been a lot of talk about a new bull market rally after three consecutive green days. The US Dow Jones actually created a record: the largest three day rally streak since 1930. While last week, there was a record for the largest decline since 1933. Tons of records being made these past few weeks in equities, in oil, in the US Dollar, and bonds just to name a few.
So the basic market theory structure is that nothing moves in a straight line. You do not see an asset move down forever, nor up forever in a straight line. In a trend (either up or down), we create swings (lower highs and higher lows) which is basically just a pull back, or a relief rally to the opposite side, before continuing the dominant trend.
So in this case, the equity markets are still clearly in a strong down trend. We have not yet made a lower high swing…however the case for this swing is now stronger.
In the Discord channel, we did actually play this move higher/ pull back on the 4 hour chart with the head and shoulders pattern. This was discussed this week as a Market Moment post.
A tool that many traders use is the fibonacci sequence. Will do an in depth blog post about fibs in the future. All trading platforms have the fibonacci tool, and they are used specifically to watch for an area where price would pull back before continuing the dominant trend (where price can create a swing). There are many fib levels here, but the key levels are: 38.2, 50.0, and 61.8. The 61.8 level is commonly known for where a swing would have to be made. A break above the 61.8, and this trend is nullified, meaning the dominant trend has reversed. For the S&P, we would need to see a close above 2935 to say that we are out of the woods in regards to the continuation of the down trend.
The 38.2 fib level is the zone where an asset could make a swing if the trend is very strong. The weekly chart of equities show 5 weeks straight of red candles…I would say that constitutes a strong trend, and we should have expected a reaction at the 38.2 fib zone. We have reached the 38.2 fib zone and price has begun to react here. Keep in mind, that this does not confirm the actual lower high swing. We would require a rejection here AND a break and close below the lows of 2179.
A lot of eyes will be on this chart for the next few weeks. To add further drama, price is near the trend line going back from the bottoms of 2009. A weekly close below or above this trend line is very telling of where price may be going in the next few weeks. I am sure we will be speaking much more about the US equity charts, and the developments at this 38.2 fib zone, in the Discord channel for the next upcoming weeks.