It’s been a while since I’ve done a full post. Part of this may feel obvious since I’ve been notably bearish for just about a year now and being a bear has sucked big time since October, with some slight relief in December, and then again sucked big time in January. The other part of this may not be as obvious as I have other issues outside of just the market moving against me (i.e., a life outside trading). As such, that part of my life required attention. Now, here I am, still working on those outside issues, but today’s action at least deserves some commentary. So here is an update to my perspective on things.
SPX Monthly Chart. No question about it, this market had a fantastic bounce off that 50 month moving average. It managed to traverse the entirety of the distance to the 20 Month Moving Average up at 4200. And it was quite disheartening seeing the bounce seem to want to push higher and higher, but it finally peaked and I believe we are finally (Finally!) ready for a big leg down. What makes me so sure this time, you might ask? Well, despite my overly bearish demeanor, I do actually listen to people who provide points of view contrary to my own. When people are screaming for bounces, sure it sucks to announce “I just entered a new short!”. But I let my stops handle the risk. And in late December/early January, that damn support at 3800 just did not want to budge.
And so with a refusal to fall (and with Slopers here noting the most bearish positioning of retail investors in history), the market started to turn up and squeeze everyone. And we managed this ungodly rally all the way up to 4200 and actually got everyone back on the long side. All the cheerleaders came out of the woodwork “The hurricane is past! Everyone come out of your houses!” And even those non-chartists charlatans on tv started touting “Descending trendline broken! Bull Market is here!”
Lastly, last week we got reiterating statements on the resolve of the Fed to not repeat past mistakes and to continue hiking rates, especially since the latest federal employment numbers were so good (i.e., inflation not tamed at all). And we finally saw a peak of the month and February is putting in a red candlestick, adding to the resistance at the 4100 area. If this month manages to close red, we should see a big rollover as the bulls get tired and start giving up (though I expect they’ll all be tooting their bull horns back down at 3700 at the 50 Month moving average).
SPX Daily Chart. Here we can actually see the break of the short term ascending trendline from the January lows. I felt my heart leap when I saw this break happening last week. And then it leapt again when I saw Monday overnight trading downwards. Taking a step back and watching the pattern emerge, that consolidation action underneath 4200 proved to be a market peak. I believe this market peak to be the last stand of the bulls. The 4150 area acted as Support aaaaaalll the way back in March 2022.
We broke down in May and failed to get above (and stay above) this level ever since. The August 2022 rally was the strongest attempt to escape and that failed to new lows. This most recent attempt managed to trade above that level up to 4196 and still failed. This latest failure to escape spells trouble in my mind. It should weigh heavy on long term bulls’ minds that after this many failed attempts, we have still gone nowhere. I expect to finally see bull fatigue set in. Today was just the beginning.
This is also an SPX daily chart, but zoomed in to show recent action. After breaking beneath the ascending trendline from January lows, now we are facing then next ascending trendline drawn from the October lows which is at 3980 (zprime corrected me today in my comments). I believe this trendline is destined to be broken before the month is out as well. Barring a truly catastrophic event, however, I think it is rare that we see two ascending lines broken in succession without even an attempt at a bounce. As such, I think we see some consolidation bounce for 2 days. If we see that bounce, I’d be looking at 4150 as the next best place to get short. I think next week should start bringing the pain for a bad March month.
I’ll end with this. This is all speculation. I could be 100% wrong on everything I’ve laid out here today. That is the nature of the game. The best I can do is lay out my plan and trade accordingly. I pick my spots and if I am wrong, I am wrong small. If I am right, I am right big. In terms of the way the market “feels”, today was the first time in a LONG time that I have felt this type of trading. Watching actual price action manage to hold resistance in such a strong manner, this is what trading in 2008 felt like. Bids get taken out, countertrend bounces hit real resistance and rollover, great intraday short opportunities. I really hope this is a sign of things to come. Best of luck in this market to All.
