S&P 500: Window For A Reversal – Week Beginning twenty sixth February (Technical Evaluation)

The S&P 500 (SPY) blew off to new all-time highs this week, mirroring the projections outlined in last weekend’s article. Not solely did the index “take a step back on Tuesday’s re-open and drop to test the 4950-60 area,” it then rebounded to the goal space at “the cluster of Fibonacci measurements in the 5107-112 area” and reversed at 5111 on Friday.

Granted, I assumed the rally can be rather a lot slower, however I doubt anybody is dissatisfied when income are made sooner than anticipated.

This weekend’s article will give attention to what to anticipate now the goal has been reached. Numerous methods will likely be utilized to a number of timeframes in a top-down course of which additionally considers the most important market drivers. The purpose is to offer an actionable information with directional bias, necessary ranges, and expectations for future value motion.

S&P 500 Month-to-month

With solely 4 periods left in February, it appears unlikely a bearish bar will likely be shaped with an in depth under the 4861 open. Even an in depth again inside January’s vary under 4931 seems to be a tall order.

That is to not say a reversal could not begin subsequent week. The October backside got here from a impartial bar, whereas the July high got here from a bullish bar. It simply means we’re unlikely to get a strong reversal sign from the month-to-month chart.

Weak seasonality within the second half of February is but to transpire, however now the Fibonacci targets have been reached, the final 4 periods might see a change.

The rally stopped at 5111 on Friday which is correct within the 5107-5112 vary the place three measured strikes/Fibonacci targets are in confluence (the 2022-2024 rally equals 0.618* of the 2020-2021 rally at 5112, the 200% extension of the July-October correction is at 5110, whereas one other measured transfer within the rally from the 2022 low is available in at 5107).

5179 is the subsequent Fibonacci extension (127% extension of the 2021-2022 drop).

4931 is a vital stage on the draw back. 4818 is the subsequent main stage on the earlier all-time excessive.

There will likely be an extended look forward to the subsequent month-to-month Demark sign. February is bar 3 (of a attainable 9) in a brand new upside exhaustion depend.

S&P 500 Weekly

A bullish weekly bar shaped this week with the next low, increased excessive and better shut. Six of the seven bars within the rally off the January low have the identical traits.

Now the Fib targets have been reached and weekly exhaustion is registering, I will likely be on the lookout for one thing completely different to kind subsequent week to sign a reversal. The secret’s for brand new lows of the week to be made on Thursday/Friday.

Price noting is the rally has now exceeded the weekly channel – is that this a breakout or is the rally getting forward of itself? I believe the latter, however we have to see no less than one other bar to know both means.

Now the channel has been damaged, there isn’t any resistance. The identical Fib goal of 5179 from the month-to-month chart is relevant.

The earlier weekly highs of 5030-48 are key to momentum. Under there, this week’s low of 4946 is preliminary help, with the 4918-20 double backside extra necessary. The small weekly hole from 4842-44 can also be potential help, however 4818 is the most important stage on the earlier all-time excessive.

An upside Demark exhaustion depend will likely be on bar 8 (of 9) subsequent week. A response is often seen on weeks 8 or 9 so we could lastly get a change in character.

S&P 500 Day by day

This week’s drop broke the channel however held the 20dma, which is precisely what was anticipated final week. A distinct channel can now be drawn which is extra related to the most recent swings.

Friday’s small dip seems to be extra like revenue taking than a bearish reversal. There isn’t any robust bias for the start of subsequent week.

The one resistance comes from the brand new channel excessive which will likely be round 5122 on Monday.

The primary help is Thursday’s low of 5038 which is in a key zone as a result of earlier weekly highs within the space. Channel help will likely be round 4980 on Monday and is in confluence with the 20dma.

A every day Demark exhaustion can’t full subsequent week.

Drivers/Occasions

Clearly, Nvidia (NVDA) earnings have been the large speaking level this week. I did see some mainstream media headlines on the rally (all-time highs in US, Germany, and Japan for the primary time because the Nineteen Eighties), which is a warning signal sentiment is getting frothy. Notably, Thursday’s blow off transfer noticed some weak internals with solely round 54% of the NYSE shares rising.

Knowledge this week was balanced – Manufacturing PMI beat and Companies PMI missed, however each have been in enlargement territory. Total, the economic system stays steady regardless of the restrictive Fed coverage. This means the Fed might need much less affect than first assumed, no less than on this a part of the cycle. All is OK now, but when the economic system does roll over, cuts are usually not prone to be the moment treatment the market expects.

Subsequent week is on the quiet aspect for scheduled releases. Prelim GDP is due on Wednesday and anticipated to indicate 3.3% progress. Core PCE Value Index m/m is launched on Thursday alongside Unemployment Claims.

Possible Strikes Subsequent Week(s)

This week’s robust motion got here with some pink flags. Weak participation on Thursday’s rally was accompanied by euphoric headlines. Moreover, the rally stopped precisely within the anticipated goal space on Friday. With a weekly exhaustion sign coming into impact subsequent week, there’s a compelling window for a reversal.

Saying all that, the market has not but proven any actual proof of weak spot. For a reversal to develop, I would search for a check increased early subsequent week to be rejected and result in a drop into new weekly lows on Thursday and Friday. In brief, the alternative to what occurred this week. 5030-5038 is the primary help space and a weekly shut under might sign the beginning of a giant correction. A every day shut under the channel and 20dma can be additional affirmation of a turnaround.