Risk vs. Reward: The State of the Stock Market and Crypto Space
Does this bull market still have legs, or could a potential July/August decline mark the beginning of a new bear market? - Examining 1-Year Forward Returns Across 15 Rare Bullish Signals
Last week, we studied the chances of a pullback considering the technical indicators consistently used in this publication, along with the Fear & Greed Index and the Put/Call Ratio. Both indicators were also signaling caution: greed was at extreme levels (as it is today), and the put/call ratio showed extreme complacency.
That pullback arrived on schedule. The SPX fell -1.25% on Monday, perfectly hitting the $6,208 bearish target shared last Saturday, and filling the gap left open from July 3rd before buyers stepped in. Different from previous bullish weeks, the last one presented choppiness, something usually seen during consolidations. The current seasonality seems to be creating a prolonged consolidation process, similar to what we saw in the summers of 2023 and 2024.
It's important to remember that my expectation for a healthy pullback is within the context of a confirmed bull market. Back in April and May, when several subscribers asked about the likelihood of a decline based on gaps, news, mainstream analysts, I maintained that probabilities favored bullish continuation—a stance that has since been proven correct. My answers are documented, and the studies can be accessed here:
When a market has strong bullish momentum, overbought conditions can persist, anyway we are seeing first signals of consolidation. Let’s begin.
Dow Jones:
This index declined -1% during the week, several components like DIS -3.3%, WMT -4.0%, NKE -2.7%, V -3.1% reversed in consistency with overbought conditions and the whole index validated the resistance indicated in the chart at $44.8K.
Since the index retraced from overbought conditions it’s worth watching if this is an early signal for the SPX and NDX, both mostly favored by the tech sector, specially semiconductors. The Dow Jones’s direction for the week depends on the $44,445.1 central weekly level. Staying below this mark maintains a bearish bias with a target of $44,086.8, followed by $43,802. Notice that the weekly levels, displayed in the top left of the chart, are very close to each other. This narrowing range indicates that a "squeeze" is forming.
A squeeze like this typically precedes a significant price move, one that could break beyond the initial support or resistance levels next week (hence the consideration of $43.8K). It's important to note that this same condition is also present in the SPX and NDX, as we will explore below.
In the unlikely case that $44,445.1 is recovered, a potential bearish reversal could happen at $44,729.8, or even $44.871.1 considering the strength of monthly levels.
CrowdStrike: A Front Runner Takes a Breather
Back on May 19th, when this stock was recovering faster than the Magnificent Seven, our fundamental study supported a bullish call that proved to be accurate. Also during the last weeks, this security has been tracked considering the support and resistance levels as suggested by subscribers during this season.
Last weekend, we shared with subscribers that $504 was the central weekly level, and a breach would signal a bearish reversal. That breach occurred on Thursday. The selling pressure was so strong that it also broke through our first support level at $491, with the price closing the week halfway to our next target of $468.
From a technical standpoint, the damage is notable. The price has lost its 5-day moving average, and given this stock's behavior, there's no guarantee the 10-day will act as support. This is compounded by a bearish RSI divergence and a Stochastic that is rolling over from overbought conditions. Alarmingly, the price has also lost the central monthly level of $488.2.
For the bulls to regain control, the price must reclaim both the lost monthly level of $488.2 and the upcoming central weekly level of $490. Until then, the bearish weekly candle, which closed near the low of the week, suggests further downside. In the long term, however, a deep correction could be constructive, allowing the stock to build a new "volume at price" platform, similar to the strong base it formed below $390.
We will now continue with our technical, price-based analysis for the following charts: SPX, VIX, NDX, IWM, SMH, GLD, SLV, TLT, BRK.B, PLTR, NFLX, AAPL, GOOG, TSLA, MSFT, NVDA, META, AMZN, and Bitcoin.
With this broad market review, we will present a special analysis for the S&P 500. This section assesses the current stage of the market after the bullish signals I've identified since April, and seeks to answer the critical question on every trader and investor's mind:
Does this bull market still have legs, or could a potential July/August decline mark the beginning of a new bear market?
Upgrade to a paid subscription to unlock all the content in this publication and access the resources linked above and available at www.smartreversals.com.
SPX - Examining 1-Year Forward Returns Across 15 Rare Bullish Signals