Technical Analysis: U.S Market – Still in a bullish trend September 28, 2020 723

  • The U.S markets had a positive relief on last Friday closing after a 3 week continuation downside.
  • Despite a strong downside, the bullish trend is still intact but we have lower our target levels in the short term for all three major U.S index from our 7th September report.
  • There will be further correction before a rebound happen.

 

 

In as much we are holding to a strong upside in the mid-term, we are still cautious of any risk that the wind of the market is blowing. Despite a good performance on Friday, the psychological resistance of 28,000 remain to be cleared.

Unlike the rest of the 2 index, the S&P 500 and the Nasdaq 100 index, the Dow Jones Industrial is severly lagging behind and it is still well below the high in Feburary- March 2020. As such, the only positive tone is that the index have to clear above the high at 29,700 to invalidate the double three corrective flat.

 

Although the Transportation index fails to clear above the all time high dated in 2018, it managed to stay elevated above the 2020 highs before the strong selling in March-April. In fact, if you were to compare the momentum moves between the industrial and transportation average, the transportation is still well intact above the uptrend line while the industrials have broken below.

In another words, the transportation for the first time is leading the industrial, which may spells a trouble ahead as the Industrial is traditionally seen leading the markets.

In 2018-2019 periods, we could see the dow theory in play and the market is seen crashing down during the March selling down period. Fast forward, will we see the opposite happen where by the industrial is making further downside correction and the transportation edging higher? This is certainly not a healthy rally, as mention in Figure 1a above, the Nasdaq 100 and S&P 500 leading ahead of Dow is signalling an unusal phenomenal and only time will tell what will happen in the next step.

 

The Dow Jones industrial had a positive upside by forming a morning star above 27,000 psychological support level but are we really out of the woods yet? Despite the stock forming a 3-wave correction, the wave C conclusion may be too early to tell as there is a possibility that wave C will be eding towards 200.00% -238.2% extension level of wave A, which coincide with the 38.2% retracement level of wave 1-5.

However, should prices edge up above 28,000, there will have 2 possible scenerios, one is that the optimistic bullish upside will form as the ABC corrective action has complete. Next, the index will continue its 3rd wave of the cycle phase. The second scenario which is most likely to happen is that it will form a 3-3-5 corrective flat pattern and the support zone highlighted in the chart will remain as a support zone. In an event where the index hit 30,000, it may be an expanding/running flat formation and the support zone will still be the rebound area. Just that when will it happen?

 

The S&P 500 formed a morning star just like the Dow industrial and although it remain below the resistance turned support zone, the chances of it breaking the upper bound and test 3,400 is high. However, wave C may not be completed yet and the scenario analysis explain earlier in Dow Industrial is the same, either a 3-3-5 corrective flat or 3rd wave impulse move.

 

Using the Ichimoku Kinkyo Hyo, we observed that the downside signal have cleared 2 out of 3 where by the Tenkan-Sen have crosses below the Kijun-Sen, forming the 1st death cross. Next the Chikou-Span which is the lagging span has crosses below the candles and the Senkou-Span A and B has crossed. The last signal of the Three Death cross signal is prices must break below both the Senkou-Span A and B.

In this case, we observed that the Morning star formation is in the cloud and we therefore expect the index to make some form of reversal to the upside. Only by breaking above the Kijun-sen then we can confirm the upside and to be on the safe side, the Tenkan-Sen must cross above the Kijun-Sen.

For now, based on the signals, the S&P 500 at best is only ranging, which also complimented the above scenario where by a corrective 3-3-5 flat is forming.

 

Nasdaq has been making lower lows since the index continue to head lower after failing to materialise the hammer 3 weeks ago. Although Nasdaq has been attempting to rally, the next crucial resistance zone 1 will be the potential selling area and should it reverse, we will be seeing price targeting 10,145.46-10,309.34.

 

Nasdaq has two out of three death cross signals just like the S&P 500. The only difference is that the resistance zone confluence with the Kijun-Sen, marking a potential reversal zone. Another worthy point to note is that the Senkou-Span A has been tested 3 times and with both the Senkou-Span A and B pointing downward 26 and 52 periods in to the future, the index upside remain bleak.

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