Warning Signs Came True - Bear Market Sentiment Could Emerge
Will NVDA save the rally? - Four Indicators to Monitor Next Week
As anticipated on May 14th, the stock market was showing overheated conditions: the market had set a fresh gap, oscillators were overbought, and candlesticks began to show indecision. The bearish reversal thesis was further documented with additional indicators on May 17th for the S&P 500, Nasdaq 100, Dow Jones, Small Caps, Semiconductors, and individual stocks like Apple, with consolidation warnings issued for Tesla, Nvidia, and other specific stocks. Reading those publications and the technical indicators used to time the bearish reversal is educational, here are the links:
Choosing the right technical indicator is key to analyzing price action probabilities. This is where I bring my experience, because no single technical indicator is accurate every time. To maximize the probability of success, I add support and resistance levels. These levels, once breached or consolidated, help you validate both bullish and bearish theses. The 20+ charts below include the closest price levels, and the S/R levels published yesterday feature analyses of more securities, including inverse ETFs (which I added in December in anticipation of the bear market) and other non-tech securities like LLY, BRK.B, UNH, PFE, and COST. Get access to the levels for next week:
Technical analysis is incredibly helpful for timing the market. Long-term investors, for instance, can greatly benefit from major bullish signals, such as the setups highlighted five weeks ago for Bitcoin, Tesla, and the broader market. Similarly, the bearish signals posted in February for the entire market proved invaluable, as mitigating a 30% decline in the Nasdaq 100 is always a welcome outcome. I'm not suggesting a perfect sell at the top and buy at the very bottom, but selling SPY or QQQ on February 21st when the central level was breached, and buying on April 23rd when it was recovered and a breadth thrust was triggered on Apr 24th – also posted here – would have been very beneficial.
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The Main Question: Was This a Bear Market Rally?
I devised the chart below so you can analyze the price action during the last 10 years versus the 200-day moving average. The red arrows highlight false breakouts above that line, and the green arrows highlight the false breakdowns before the market bounced and continued the uptrend. The fact that there is a gap acting as a magnet for SPX at $5,691 ($567.5 for SPY), NDX $20,203 ($491.5 for QQQ), and so on for individual securities like NVDA, AMZN, META, and others, suggests that the 200 DMA will be breached next week. The chart presents that a breach is not a guarantee of a new trend, and as I present in the S/R levels educational content, the levels can be breached temporarily so any risk control must consider some distance from the levels, and/or the completion of candles in the daily, or even in 4H or 2H timeframes.
Is a breach of the 200DMA a motive of concern? It is definitely something to watch, I have written what is the direction that recent events favor the most after this pullback, and also the fact that stomaching pain with conviction is something avoidable when using the S/R Levels, which triggered the sell validation on Wednesday when $5,901 was breached with conviction for SPX, and so on for other indices and stocks.
The chart above also features the McClellan Oscillator, currently at -54. This reading, still some distance from the oversold threshold of -70, suggests further downside is likely, indicating that certain oscillators will reach oversold levels by the time the gaps in SPX and NDX are filled. Notably, the horizontal yellow line on the oscillator's chart marks the latest level. Observing its historical context, only a few lower levels can be easily detected over the last 10 years, and those instances have consistently coincided with significant market bottoms. The content below updates the probabilities for both bullish continuation and a potential bear market resumption.
If you invest or trade some of the following securities or are interested in investing in some of them, this publication is for you: SPX, NDX, VIX, IWM, SMH, DJI, BITCOIN, TLT, NFLX, PLTR, AAPL, GOOG, TSLA, MSFT, NVDA, AMZN, META, GLD, or SLV. More securities like AMD, LLY, UNH, COST, BRK.B, SPY, QQQ, DIA, and more, are also included in the S/R levels edition or in the fundamental analysis library.
SPX - My Preferred Moving Average and my Concern based on the Monthly