The market did pulled back on the 1st two days, and continue its rally pushing prices above last week’s high. Congrats to all those who bought the dip. On next week’s outlook, let’s see the charts.
Last week, I mentioned that before a confirmation of change of behaviour from bear to bull, usually a double bottom will occur before the rally resumes. It has happened in the last two occasion circled in red (as indicated on the chart above). What’s the chance of it happening again?
If you study the RSI, a double bottom usually will happened if the first spike does not caused the RSI to cross above the red line (as indicated on the RSI reading at the bottom of the chart). A pull back did happen last week, but as it resumes, it has caused the RSI to cross above the red line I have drawn on the RSI reading. Although anything can happened in the market, but chances of a double bottom now have been reduced base on this analysis.
After “A” (a dip / correction – as indicated in the red circle above) has happened, it will be followed by “B” action (as indicated on the green box above). “B” – the rally (as indicated on the chart).On the daily chart, I would like to study the strength of the bulls VERSUS the bears to find out the probability of a double bottom happening.
Before “B” can happen, usually, there will be a retest of the last low within the price range (as indicated in the red circle). The last dip, after prices found its first bottom and rallied, it did pulled back forming a lower low before the real rally heads north.
When that happened, the rally after prices meets the first low would not be able to rally to the extreme top of the channel. And MACDH would not go above 0 by a large extend as indicated on the first red rectangle box shown in the MACD reading below the chart.
On the extreme right hand side, after price found its first low and rallies, I would like to highlight two signs:
1) Prices reached the top of its price channel.
2) MACDH rise way above 0 as indicated on the red rectangle box shown on the right side of the MACD reading.
When these two signs occurred, theirs is a high chance “B” is already happening. We are in the early phase of trend reversal.
Last week, after VIX went near its low, it rallied off its support. But VIX is still on its down trend base on EMA.
If the bears have strength, VIX Daily might rally to its 1st resistance around $17 or $18.5.
Summary:
Mid term view:
Still in mid-term down trend. But EMA on Dow signal the beginning of a change of behaviour. On S&P, EMA has already crossed. If the EMA and price line widen, we are back in the bull run.
Short term view:
Short term, we are already in the up run. But right now, all prices are sitting on its resistance zone. Pull back will occur, but base on the analysis above, a double bottom is unlikely. Any pull back might be buying opportunity to take the ride. But if Dow goes below 12765; S&P 1385, better get out an reassess the situation.
NOTE: All information provided “as is” for informational purposes only, not intended for trading purposes or advice
