As we had anticipated, the market has finally bounced, and rallied pretty sharply. Could it be the start of a reversal or just a dead cat bounce?
On the weekly chart of the Dow and S&P500, on the two occasions in the last 2 years, before any reversal, there’ll be a retreat from its bounced (as circled on the chart, and as indicated on the RSI) before the reversal stretched its legs for another leg of bull run. I’ll be waiting for the retreat and check for sign of divergence to confirm the change of market behaviour.
On the daily, I’ve marked the reversal behaviour in the last one year. And if the pattern is to repeat itself, the market might pull back to shake out the weak bulls before a reversal confirms itself. If it does not, we will be experiencing just a dead cat bounce.
On the VIX, it is very near its support. I suspect next week, the market might rally a little bit more before a pull back occurs s soon as the VIX cut deeper into the support zone. But since VIX has reverse back into a down trend as confirmed by the EMA, any bounce would assume be short lived.
Summary:
Mid term view:
Market has bounced off its oversold zone, but still in mid-term down trend.
Short term view:
The price is now at the top of its channel, near short term over bought zone. It can pull back anytime now. Base on the VIX, there’s still some space for the market to go slightly higher before any pull backs. Stay tune and watch for sign of divergence on MACD or RSI to price action before betting on a reversal.
NOTE: All information provided “as is” for informational purposes only, not intended for trading purposes or advice
