Technical Analysis: U.S Market – The market had a strong upside on the eleventh hour last Friday. Neutral outlook remains. May 11, 2020 816

  • The United States economy has taken some beating with the April 2020 unemployment level rising to a historical level of 14.7%, a staggering jump from 4.4% in March.
  • The striking rise in unemployment is due to the total lockdown across various states.
  • The stock market rebounded last week from the fall two weeks ago, with Dow closing above 24,000, S&P 500 closing above 2,900 and NASDAQ Composite index closing above 9,000.
  • Despite record poor economic data and an earnings slide, the stock market continues to rise which shows signs of irrationality in the market.
  • We are maintaining the neutrality of the market based on the report on 27th April 2020


Market summary

The U.S market’s continued rebound had puzzled many investors and the big question remains – will the market rally continue despite the bad economic data in recent period or will the sell-off return? Last week, the market rallied in hope of the trillion-dollar stimulus package and the easing of the lockdown bring some relief to the market but the structural and bureaucratic issues in the United States may slow down the process of the stimulus package being distributed. The amount of damage by the virus on the economy is huge and several rounds of stimulus will be needed to resolve the systemic problem faced by the economy. However, partisan politics will likely slow the process of passing the next stimulus package.

Next, the health of the workforce must be taken into account as the lockdown has eased. Should the workers in the United States be affected by a continued rise in the COVID-19 infections, productivity levels of the economy will decrease.

The key factor on why the current crisis is different from past crises such as the 2008 Global Financial Crisis is that the current crisis is triggered by a worldwide pandemic, which revealed the fundamental weakness in the U.S economy after decades of mismanagement. The stock market rally may continue but as it is approaching key technical resistance levels, the market is showing signs of uneasiness and the tug of war between the stimulus and poor economic data will likely turn the whole market into a prolonged ranging pattern. Will market rationality triumph this time around?


The shooting star two weeks ago had a high chance of being invalidated as there was a strong bullish rise last week. Based on the wave analysis, we maintain an outlook of a potential double-three corrective wave action with price levels edging closer to the 61.8% of wave C of the expanding flat. Should there be a clear sign of rejection at 61.8%, the 2nd leg of the 3 sub-wave within the double-three will be formed and this will further increase the probability of a prolonged range of the double-three.


Dow Jones industrial daily chart shows a potential head-and-shoulder and the immediate resistance at 24,600 level remains a key level to watch. If the resistance level is invalidated, the next immediate level to be tested will be at 61.8% of the Fibonacci retracement level of wave C, which was mentioned in the weekly chart.

Looking closely, while the price has broken out of the rising wedge, the stock remains in a ranging manner. In other words, the stock remains a range within a range.

Key resistance levels are between 24,600 – 25,231 and potential rebound level is between 20,761 – 21,509 and 18,213.65 – 19,073.80.


SPX 500 had the same structure as Dow Jones Industrial Average but the only difference is that SPX 500 has broken the resistance level of 2,860 and is testing the 61.8% of wave C twice, forming a potential double-top. Should the price break above the 61.8% for two consecutive periods and above the 3,000 psychological level, then the next level to be tested is at 78.6% of the Fibonacci retracement level of wave C at 3,136.36.

Key rebound level remains at the 2,528 level and the 2,191 level.


NASDAQ is the only index whose growth surpassed the DJIA and SPX 500. It is also the only index with 3-3-5 sub-waves. Nasdaq composite closed at a high of 9,047 on Friday. However, the key resistance zone between 9,190 – 9,390 is a crucial level to look out for as it confluences with the 88.6% retracement level of wave A and 161.8% of wave (w)-(x). Furthermore, the strong bearish gap is located near key Fibonacci levels. Should prices reject the resistance zone, we will be looking at a strong downside towards the key support zone at the 7,288 – 7,688 region.

Breaking of the resistance zone will see prices testing historical levels of 10,000 points.


Amazon has been a darling of many investors during the sell down which saw prices rally from 1,626 to 2,475. However, as mentioned on the 20th April report, the upside is limited and it has yet to break the recent highs since. Current analysis suggests that Amazon is forming a 5-wave expanded triangle with prices testing the 2,500 high at wave ((d)). However, the key rebound level remains at wave ((e)), which remains at the 2,185.95 level or key support zone at 2,000 – 2,048.61.


Netflix had a strong rebound at 393.60 after a sell-down on 22nd April. The rebound was strong with prices breaking out of the flag formation. It even invalidated the shooting star formation on 1st of May. However, the rally proved to be short-lived when price tested the 78.6% and 88.6% of the flag after a shooting star candlestick was formed. As such, we believe that the stock is heading downwards to retest the support level at 393.60 or 363.38 – 372.10 region.


Nvidia initial sell down was performing according to our expectation based on our report on 29th April 2020. However, the unexpected bullish engulfing candle near the support level of 277 took us by surprise. Since then, the wedge formation has been invalidated and the strong bullish closure on Friday increased the probability of Nvidia taking out the top resistance at 316.32. However, we believe strongly that after breaking the resistance level, the stock will retrace and test the immediate support zone at the 300 – 302 region before edging higher to 353.21 to form an expanded flat formation.


Although Microsoft has been edging higher after invalidated a double top on 30th April. The rising wedge formation remains intact with the remaining candles forming a small doji-like pattern near the resistance level of 188.00 psychological resistance level. As such, we believe that 188.00 psychological resistance will be rejected, completing the wave B of the corrective move.

Should price falls from that level, we will see that price continue its 5 sub-wave down to form wave C.


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