Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is the Stock Market Recovery Rally Nearing Exhaustion?

Stock-Markets / Stock Index Trading Jan 14, 2019 - 12:50 PM GMT

By: Mike_Paulenoff

Stock-Markets

My article last week, "Tale of the S&P 500 Tailwind," came on the heels of the Emini S&P 500 (ES)'s rally of 100.75 points (4.1%) off the 2019 low and 53.25 points (+2.1%) above the Christmas week close. On its face, the advance was impressive, but recall that I qualified my enthusiasm, stating the following:

"In the aftermath of the Christmas Upside Reversal, last week ES (e-Mini March S&P) traversed a range from 2438.50 to 2539.25... and ALL OF IT occurred on Friday (1/04/19) after Jay Powell acquiesced to the wounded easy money masses, appearing to become a kinder, gentler, and more investor-sensitive Fed Chairman."


Furthermore, I added:

"With the next FOMC policy meeting, statement, and press conference scheduled for January 29th and 30th, we are unlikely to hear from Fed Chair Jay Powell again for at least three weeks, but we will definitely hear from President Trump..."

Who knew that Fed Chairman Powell would feel the "need" to double-down on his original market supportive comments made on January 4 during a televised conversation with former Fed Chairs Bernanke and Yellen? As it turns out, Powell had scheduled for Thursday January 10 -- less than one week after his metamorphosis into a kinder, gentler Fed Chair -- another little (televised) chat at the Economics Club of Washington, D.C., perhaps to reiterate the Fed’s newfound sensitivity to both real economic data and stock market behavior, rather than "blindly" marching towards rate normalization after a 10-year period of Fed-engineered, artificial ZIRP or NIRP.

Let’s notice on the daily ES chart that the price structure has climbed for 6 consecutive sessions, starting with Powell’s Jan 4 comments through his Jan 10 Q&A session, into this past Friday’s (Jan 11) close. Reaction to his original comments on Jan 4 pivoted ES to the upside in excess of 100 points on that trading day, whereas anticipation of what he might say on Jan 10 helped buoy the equity markets and produced the bullish tailwinds we discussed in last week’s column, which noted:

"Right now, my technical set-up and momentum work on ES point still-higher, into the 2580-2600 target zone where I will be expecting the recovery rally off of the Dec. 25th low at 2316.75 to exhibit both pattern completion and upside momentum exhaustion."

ES hit its post Dec 25 recovery rally high at 2599.50 last Thursday (Jan 10) afternoon during Powell’s televised Q&A. It closed Friday at 2595.00, bumping against the upper bound of my next optimal target zone of 2580-2600.

The question now is whether ES (and the other major equity market indices and ETFs) are at or near exhaustion? My answer: It depends if the direction of the dominant trend is Up or Down.

If the dominant trend is down from the September 2018 all-time high at 2947.00, then the recovery rally (so far) of 44.9% of the entire decline into the Christmas Day low at 2316.75 certainly qualifies as a "healthy and normal" counter-trend period amid sentiment gauges such as DSI (Daily Sentiment Index) that have climbed from an extreme oversold reading of 6 on Dec 24 to 48 as of Thursday’s close, and the CNN-Money Magazine Fear and Greed Index, which has improved from 0 (that is correct, ZERO) on Dec 25 to 30 as of Friday’s close.

If ES suddenly reversed to the downside after a 45% recovery rally overlaid by a climb in many of the sentiment gauges towards neutral, traders and investors hardly should be surprised. After all, a price reversal from in and around the 50% recovery-resistance zone (2635) of the entire prior downleg would be considered classic technical action within a larger bearish set up.

That said, however, let’s also notice on the daily ES chart my annotations of the most significant and egregious Fed "interventions" during the "V-shaped" 11-session recovery period. On the left or downside portion of the "V," the jawboning efforts from the powers that be elicited failed rally attempts followed by continued weakness, whereas, so far on the right or ascendant portion of the "V," Fed Chair Powell’s remarks on Jan 4 and Jan 10 have triggered and buoyed upside progress.

What is curious, though, is the conspicuous lack of volume expansion after Powell’s initial Jan 4 acquiescence to the whining, super easy money crowd. Volume certainly expanded into the series of down-days during late December, but has failed to produce a mirror image in the relentless rally period during the first two weeks of January.

If we are to consider Christmas week weakness as a high-volume downside capitulation, then how should we consider the ensuing early January period in the absence of compelling volume? Last week, in particular, during the heretofore anticipated bullish tailwinds, neither Powell nor the algo traders were able to manufacture a powerful, confirming high-volume upside follow-through. If the old adage "volume precedes price" has any merit, then an extension of the 11-session rally engenders much skepticism.

This should be a bit disconcerting to the bulls, especially as earnings season revs up this week with the big banks starting to report on Monday (Jan 14). As the ES price structure navigates the 50% retracement-resistance zone of the entire September-December decline, overlaid by possibly diminishing returns from "the Powell Effect," amid declining volume, and a near-term Rising Wedge formation, the current technical set-up is particularly vulnerable to a powerful downside reversal. Earnings -- or investor reaction to earnings -- need to overcome a relatively mature recovery upleg.

And if earnings reactions increasingly become a sell-the-news event, then the interventionist Fed will have to attempt to rescue the equity market yet again. In that the net result of Powell’s second bout of Fed cheerleading (aka manipulation) last Thursday amounted to a "surge of ES strength" of only 15 points from 2585 at 12:45 PM ET to 2599.50 into Thursday’s close, I dare say that the efficacy of Fed jawboning about "patience" before hiking rates again might have run its course. If earnings fail to lift the equity indices, Powell or his FOMC faithful might have to schedule another Q&A session, or a speech to float the next trial balloon, a temporary halt to the Fed’s autopilot QT (Quantitative Tightening) program.

While some will argue that Fed back-pedaling on the next rate hike, real data dependence, and a more market-friendly demeanor in and of itself is sufficient to underpin considerably more upside in the major averages, and to extend the 2009 bull market, I have my doubts that the Powell Era will facilitate a return to the "experimental" QE Bernanke years.

As a matter of fact, in a late-Friday article published in the online WSJ entitled, "In 2013, Powell Worried Fed’s bond Buys Were Distorting Markets, Transcripts Show," the Journal writes: "Jerome Powell worried the Federal Reserve’s bond purchases were distorting markets and encouraged his central-bank colleagues in early 2013 to signal plans to wrap up the stimulus campaign, according to transcripts of policy meetings released Friday." Furthermore, Powell is quoted in the January 2013 transcript saying the following: "There is every reason to expect a sharp and painful correction."

Thus far, in the larger scheme of things, the 2274 point bull market in the cash SPX from 2009 into 2018 has relinquished 594 points, or 26% between September 21 and December 26, 2018. Is a three month, 26% decline, the full extent of "a sharp and painful correction" after a 10-year bull market?

Although he made those comments 6 years ago, when he was a “lowly” Fed Governor instead of the Fed’s head honcho, do we think Powell has evolved into a different mindset, or alternatively, down deep, that he is more convinced now, 6 years hence, that "normalization" must proceed, albeit with a pause here or there, to ensure the future health and prosperity of the economy and the financial markets?

Who knows? The markets do. They will provide hints about whether The Powell Fed is a wolf in sheep’s clothing, or really a sheep. The price action over the coming days will tell us a lot about the market, and its underlying psychology.

For our analysis and trading purposes at Mptrader.com during the upcoming week, we will be closely watching the juxtaposition of the ES price structure and the sharply upsloping, but highly sensitive 5 DMA, at 2578.90 as of Friday’s close (see attached chart). As long as ES continues to trade above the 5 DMA, ES should trade higher and continue to claw its way towards a test of the 50% retracement-resistance level at 2635/40 from Friday’s close at 2595.00. Conversely, if ES breaks, sustains, and closes beneath the 5 DMA, then extreme caution will be in order ahead of an increasingly likely exhaustive end to the recovery rally, and resumption of the dominant downtrend.

I closely monitor ES price action and chart pattern development via multiple updates and chart posts, among other names and indices all throughout the trading day for subscribers in the MPTrader.com room.

Have a closely risk-managed, and profitable trading week.

See chart on the Emini S&P 500 with Fed intervention annotations.

Mike Paulenoff is a veteran technical strategist and financial author, and host of MPTrader.com, a live trading room of his market analysis and stock trading alerts.

Sign Up for a Free 15-Day Trial to Mike's Live Trading Room!

© 2002-2019 MPTrader.com, an AdviceTrade publication.  All rights reserved. Any publication, distribution, retransmission or reproduction of information or data contained on this Web site without written consent from MPTrader is prohibited. See our disclaimer.

Mike Paulenoff Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in