S/R Levels July 22nd - 26th
The central S/R level was finally broken, triggering widespread selloff. Use these levels to plan ahead your trades and assess risk / reward.
The bearish reversal signals highlighted in the latest Weekly Compass edition proved accurate, with the market experiencing a decline consistent with an overextension and breaching the central S/R levels published previously.
The good news for bulls is that a rare bullish signal was triggered on Tuesday. In the 70 years prior, there have been 25 similar occurrences, and in 92% of those cases, the S&P 500 was in the green zone with a single-digit percentage gain above the bullish breadth thrust after two and three months. Additionally, the S&P 500 was two percentage digits above the signal after six and twelve months in 96% of those cases.
However, the upward path is not a straight line. These bullish signals often occur alongside overbought conditions, followed by a pullback, as discussed in Wednesday's educational content about breadth thrusts, with over 10 examples provided. Access to that publication here:
https://smartreversals.substack.com/p/breadth-thrust-signals-short-and
That said, the decline is not over, and in advance to the Weekly Compass edition, I’m sharing some charts.
The S/R levels are very relevant for next week, since charts like AAPL and GOOG have references for a bounce, but confirmation is needed; in the same way the indexes may be close to a bounce, in their case I’m paying attention to the first support level (magenta column in the weekly table below).
Dow Jones:
This weekly shooting star is a significant event, and as highlighted in yellow for previous cases it has been followed by a decline, which is something anticipated in the previous Weekly Compass: a touch to the higher Bollinger band before a decline to the lower one.
The annual level highlighted will be tested; that line is a good reference to stay bullish above it or bearish below it considering that oscillators are in reversal setup.
You know that the market had not declined, one of the reasons was that Dow Jones had not reached overbought levels.
IWM
As it was also indicated last week, the daily chart looked bearish but not the weekly one, there were further upside pending and that was exactly what happened during week. It is worth noting: