Did the Bull Run Charge Too Fast? Key Levels and Risks for SPX - Watch Outs In Tech
SPX, DJI, and International Indexes Look Strong, But Tech Megacaps Raise Concerns. Bitcoin Continues Its Divergence from the Stock Market.
Tech will define the compass for next week, setups for the big seven suggest caution.
Five Checkpoints Confirmed, But Was It Too Quick?
Last week (The one ending on May 3rd) saw the confirmation of all five bullish indicators anticipated on April 27th, although the speed of the rally is something to study carefully. Here's a recap of the fulfilled conditions:
SPX holding above $5061
SPX breaking resistance at $5110
VIX falling below 14.8
Nasdaq 100 staying above $17609
Dow Jones Industrial Average (DJI) consolidating at $38371
Don't Fight the Trend, But Be Aware of Risks:
Following the principle of "don't fight the trend," a bullish outlook was provided to subscribers based on two key points:
A weekly open above $5092, the central support/resistance level provided in advance for that week, would signal bullish bias.
Crossing the 50-day moving average
Both factors would open the way towards $5215, the next resistance level.
The Week's Close and Lingering Questions:
The week closed at $5222, still within the resistance zone expected. Two key questions remain:
Oscillator Implications: Weekly charts show oscillators just exiting the overbought zone, and far from oversold levels. What are the potential risks associated with this?
Gaps to Consider: How will the price action handle the gaps left behind during the rapid rise?
Overbought Conditions and Historical Insights:
The answer to the first question lies in past instances of overbought technical indicators. By consistently studying market behavior and conducting various analyses, I've aimed to anticipate potential outcomes for unusual events.
The strong rally from November 2023 to March 2024 is a prime example. Similar to a few historical occurrences in the past 60-70 years, technical indicators became overextended during that period.
Here's what historical data and the studies conducted (links above) suggest regarding overextension: