Expanding Wedge Pattern, Breakout or Breakdown?
In a previous post I explained how traders should watch out for selling or long positions being covered near crucial long-term resistance zones. You can see these resistance levels above highlighted by the 200-day moving average and the downward trending bear market resistance level. The bear market resistance is the same dynamic resistance level of the expanding triangle or wedge pattern. Will the market breakout to the upside into a bull market? Or will there be another reversal to the downside at this resistance level just like what has already happened a few times in this bear market that we are currently in?
DON'T FIGHT THE TREND
Currently the long-term trend is down. If you are a swing trader then you don't want to fight the trend. So, in theory, when the price of the $SPDR S&P 500 ETF (SPY.US)$ reach a major long-term resistance level investors should be looking for short positions in a bear market. That appears to be the case this week as you can see in the picture below. There were a lot of sellers stepping in this week near the bear market resistance level. Also take note of all of the selling in the past that occurred at this same resistance level. Don't fight the trend until it ends. What will it take for this downtrend to undergo a reversal?
THE TRENDS CAN CHANGE
You don't want to fight the trend but the trend must eventually change. Will this year be a continuation of last years downtrend? Some of the factors that were holding down equities last year are no longer a hindrance. Last year the Federal Reserve needed to see inflation dropping in order for the interest rate hikes to end. Their interest rate hikes sent the dollar skyrocketing with yields as inflation was climbing in a big way.
Compared to the majority of 2022, this year has a much better macro picture to give equities some room to the upside. Inflation is obviously on a downward path. The China reopening could slow this downward trajectory but the direction is still downward which gives the Fed room to slow the interest rate hikes. This would be good for equities.
As for the technical picture, This is the first legitimate higher low in price action that has happened during this entire bear market. If you know anything about an uptrend then you know that an uptrend starts when a higher low is printed on the charts.
The dollar is dropping with treasury yields. This is due to all of the bad economic data in the US that shows slowing growth which is bringing down inflation. This is good for equities in the current macroeconomic environment. All of the bad economic data has been good news for equities. That was the market narrative for the entirety of last year.
It appears that the trends could possibly be changing for 2023. Bad news has been good news for equities in 2022. So far this appeared to be the case for 2023 until the last batch of economic data was released. You can see this in the picture below. In this instance the bad news in the economic data did not give a boost to equities. This shows you that recession fears are still fresh in the back of most investors minds.
BAD NEWS IS GOOD NEWS UNTIL IT IS TOO BAD
"Inflation is obviously coming down at this point. So this year is the year of disinflation. Disinflation is very bad for an economy. It is the last thing you want to see. But we need inflation to come down. It is indeed coming down and it is affecting the economic data like we saw today. There was very bad economic data on all data points. The market initially reacted positively to the slowdown in economic activity. But the narrative in the media is that the bad news was too bad today. And that is the reason for this sell-off in equities."
This was a quote from a previous post. Last year the Fed wanted to see slowing economic growth to slow down inflation. They are getting what they wished for. But when the economic data is too far on the negative side the recession fears will take over and you will see investors selling. That is similar to what we saw with the last batch of economic data that was released. You can see that data in the picture below.
WILL THERE BE A BREAKOUT OR A BREAKDOWN?
Personally I am sticking to the long-term downtrend at the moment. That is where my money is currently. This year the market is set up in a much better position than it was January of last year so things look a bit more promising for 2023. If the S&P 500 can climb above the bear market resistance level mentioned above then I will be much more optimistic about potential upside in the market. Until that happens I will not be placing any long-term investments in the market. Im still bearish but I am leaning more towards the bullish side than any other instance from 2022.
DO YOU THINK THAT THE S&P 500 WILL CLIMB ABOVE THE LONG-TERM RESISTANCE LEVEL VERY SOON?
As always, good luck trading. Be careful and be patient. Give your investments time. Don't invest in anything you don't understand. Don't put all of your eggs in one basket. Don't listen to the hype. Don't fomo or panic into or out of trades. And just follow the trends. A trend is your friend.
$Powershares Exchange Traded Fd Tst Db Us Dollar Index Bullish Fund Etf (UUP.US)$ $SPDR Gold ETF (GLD.US)$ $iShares Silver Trust (SLV.US)$ $Ishares Iboxx $ High Yield Corporate Bond Etf (HYG.US)$ $Ishares Iboxx $ Investment Grade Corporate Bond Etf (LQD.US)$ $iShares 20+ Year Treasury Bond ETF (TLT.US)$ $Crude Oil Futures(DEC4) (CLmain.US)$ $VanEck Gold Miners Equity ETF (GDX.US)$ $VanEck Junior Gold Miners ETF (GDXJ.US)$
$TENCENT (00700.HK)$ $SSE Composite Index (000001.SH)$ $CSI 300 Index (000300.SH)$ $CSI 300 Index (000300.SH)$ $FTSE Singapore Straits Time Index (.STI.SG)$ $NIO-SW (09866.HK)$ $NIO Inc. USD OV (NIO.SG)$ $NIO Inc (NIO.US)$ $BILIBILI-W (09626.HK)$ $Bilibili (BILI.US)$ $Baidu (BIDU.US)$ $BIDU-SW (09888.HK)$ $XPeng (XPEV.US)$ $Li Auto (LI.US)$ $BYD COMPANY (01211.HK)$ $BYD Company Limited (002594.SZ)$ $S&P/ASX 200 (.XJO.AU)$ $FTSE Singapore Straits Time Index (.STI.SG)$
$Chevron (CVX.US)$ $Phillips 66 (PSX.US)$ $Valero Energy (VLO.US)$ $Devon Energy (DVN.US)$ $Occidental Petroleum (OXY.US)$ $W&T Offshore (WTI.US)$ $United States Oil Fund LP (USO.US)$ $United Sts Brent Oil Fd Lp Unit (BNO.US)$ $Imperial Petroleum (IMPP.US)$ $Houston American Energy (HUSA.US)$ $Indonesia Energy (INDO.US)$ $BP PLC (BP.US)$ $Exxon Mobil (XOM.US)$
$Bitcoin (BTC.CC)$ $Ethereum (ETH.CC)$ $ETC (ETC.CC)$ $Yearn.finance (YFI.CC)$ $Terra (LUNA.CC)$ $Litecoin (LTC.CC)$ $Stellar (XLM.CC)$ $Cardano (ADA.CC)$ $Bitcoin SV (BSV.CC)$ $Bitcoin Cash (BCH.CC)$ $Compound (COMP.CC)$ $Polygon (MATIC.CC)$ $Dogecoin (DOGE.CC)$ $Metaverse ETP (ETP.CC)$ $Verge (XVG.CC)$ $Orchid (OXT.CC)$ $OMG Network (OMG.CC)$ $0x (ZRX.CC)$ $Qtum (QTUM.CC)$ $NEO (NEO.CC)$ $Dash (DASH.CC)$ $Theta Token (THETA.CC)$ $Tezos (XTZ.CC)$ $ZEC (ZEC.CC)$ $Maker (MKR.CC)$ $Decentraland (MANA.CC)$ $Cosmos (ATOM.CC)$ $ChainLink (LINK.CC)$ $Monero (XMR.CC)$ $TRON (TRX.CC)$ $Polkadot (DOT.CC)$ $XRP (XRP.CC)$ $Binance Coin (BNB.CC)$ $Bitcoin Gold (BTG.CC)$ $Uniswap (UNI.CC)$
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
Read more
Comment
Sign in to post a comment
Trade the trends via technical, fundamental, and macro analysis. Day Trades, swing trades, and long-term investments.
19KFollowers
2984Following
33KVisitors
Follow
102640653 : Thanks friend . Appreciate . Tencent looks good at the moment . With volume n upward momentum maybe it can break up
102640653 : If u r free can update detailed technical outlook for Alibaba: current resistance, chart formation. Long term resistance. Support . Trends going forward. Thanks a lot friend. Appreciate .
AkLi : Hi Spyder! Thank you for your analysis :) I agree that right now there is a bunch of uncertainty in the air. Just a few questions. What were your thoughts on SPY’s pricing today? It seemed like a heavy downtrend with the initial HH followed by tested HLs and LLs through the morning. Around lunch the market pulled an extra long W where bull flags were basically everywhere and bear flags being out ran by volume. I know the vice chair mentioned they saw inflation going down, and the market seemed to rally but during which they also stated that they expect increased / trending layoffs to remain that way and then later said they expect to stay the course implying that a fed pause may not be implied for the next CPI. The market continued to rally, but as mentioned the dollar seemed relatively the same. There was a ton of HHs and LLs throughout today. I am wondering why you think that is? Could it be the investors finally hearing some decent news for once in the past year or do you think that the market over reacted with news of a stabling economy. Would we see the market come down a bit but not as much since tech earnings are coming out or are you pricing in your analysis that we may still have quite aways to go. Thank you Spyder for your analysis again and I hope we can have further conversations
SpyderCall OP AkLi : I definitely do not believe that the fed will pause at next rate hike meeting. If they do I think the market might rally. What are HH, HL, and LL? I'm not familiar with the acronyms you are using. But I do know that candlestick patterns and chart formations on the lower time frames, like the 1-minute or 5-minute candles, are less reliable. On the shorter time frames it is smart to look at order flow as well as the technical levels.
It is very strange to see that the dollar fell with equities today and this past week in general. That divergence will correct itself soon I believe. The only time you see the dollar and equities falling for a sustained amount of time is during an American recession. And we are not there just yet.
Personally I don't see the economy stabilizing. If the market was thinking this then it was for sure an overreaction.
As for tech earnings, I am on the fence with this topic. High yields, in theory, have detrimental impacts or tech companies earnings. And it takes over a year for the lag effect of interest rates before the negative effects show up on earnings reports. Personally I have not been an active trader during a tech meltdown during high inflation and sky high interest rates. So this is new to me. I have not priced in anything for tech earnings just yet. But, in theory, their earnings should be getting worse some time soon.
But you never know. The market will do what ever it wants sometimes. no matter how irrational. That's why I just stick to the technical analysis, follow the trend, and keep some general macro knowledge about what is going on around the world.
SpyderCall OP 102640653 : I was actually working on that right now. I should be done soon. Ill tag you in the post when it is complete
102640653 SpyderCall OP : Thanks
魔家 SpyderCall OP : HH:higher high. HL: higher low. LL:lower low.
SpyderCall OP 魔家 : okay i see. its very obvious now that you tell me. i should have thought of that. thank you for the clarification