In this “special edition” post, I recorded my thoughts on the stock market in an 8-miunte video. The main headline is that an abrupt improvement in the technicals from a major upside reversal forced me to run from my short-term bearish trading call and settle into neutral. As has been the case all year, the window for being bearish was short.
I used ChatGPT to clean up and structure the automated transcript of my video discussion. I further edited ChatGPT’s edits.
Introduction
Hi everyone, this is Dr. Duru from the Market Breadth, working with Ahan Analytics. Let’s do a quick review. Today was a major reversal day to the upside, whereas we’ve been seeing a lot of major reversal days to the downside over this year that produced fake topping patterns. Sorry, I should say they were real topping patterns, but this market has been so bullish they didn’t last.
Market Reversal
Well, the last bearish setup also did not last long, so I am forced off of my bearish position, and I am moving to neutral. That’s why I wanted to do a quick review of what has made me change my mind so quickly yet again.
This is swingtradebot, as many of you know, and it’s my favorite stock scanning tools. I have a subscription, so some of the things I show may not be available. Basically, everything came up green. Let me just show some key things here.
The S&P 500 (SPY) showed some key signals. It crossed above the 50-day moving average (DMA) because the index itself crossed above that average. I’m going to show some charts later. Another notable signal is the bullish engulfing pattern for the small caps, specifically the Russell 2000. Hammer candlesticks are also present. These are all signs of a major reversal in the stock market. The Dow as well had a Hammer Candlestick as a key signal.
Bullish vs Bearish Technical Signals
Now, while the advancers and decliners were not that different (3,000 advancers versus 2,600 decliners), what was dramatic were the signals. Obviously, there were more new highs than new lows, but most importantly for swingtradebot, we had almost 4,000 bullish signals versus almost 2,000 bearish signals, meaning twice the number of bullish signals compared to bearish ones. That, to me, was a big tell.
The unusually active signals for the day were all dominated by bullish signals. The key patterns I picked up include the bullish engulfing and Hammer Candlestick patterns, and the Morning Star is another bottoming signal. These are important indicators, especially if you’re bearish—it’s time to step aside and let the market do its work.
Scans and Stock Picks
Typically, I would go into some of these scans and pick out key stocks. Hopefully, you have a subscription by now, and you can do that yourself. Instead, I want to go to the charts and keep this review short.
S&P 500 Chart Review
Let’s first take a look at the S&P 500. This was the key action. Things looked pretty bad at the lows of the day because the S&P 500 came off this 50-day moving average resistance (the red line) and went right to the low from last Friday. This was part of the bearish setup I identified last week. Even though it was below the lower Bollinger Band, I expected this to confirm the resumption of the bearish signal and see more downside, perhaps even going into next week’s big Fed meeting.
Nvidia’s Influence
Instead, buyers had a different idea. Nvidia (NVDA) was a big part of this. The CEO had some positive things to say at a conference, and Nvidia basically controlled the market’s mood. If Nvidia is going to soar, people just want to buy everything. Let me quickly flip over to Nvidia so you can get a visual.
Nvidia soared by 8.2%. It’s right at the 50-day moving average resistance, so it still has a bit more work to do to get back into good form. It also has to beat out this resistance, which was a lower low. Anyway, we’ll save Nvidia’s analysis for another day.
S&P 500 Rebound
Going back to the S&P 500, it also has some work to do. The bullish engulfing topping pattern is still in effect, so buyers need to get above this to invalidate that signal. Those of you who read my blog know that the end of August made it look like the index was about to break out, but this quick reversal is what started the bearish pattern. It also set up what still looks like a kind of double top. Buyers still have a lot of work to do, but breaking out above this 50-day moving average is the first step toward that goal.
Neutral Stance
Now, I am neutral because I was just bearish. I want to see buyers get over this hump before I go back to a bullish bias.
NASDAQ Performance
Let’s take a look at the NASDAQ. The NASDAQ soared 2.2% today. It is right below converged resistance at the 20-day moving average and the 50-day moving average, so it has some work to do. But, if Nvidia gets through its resistance, you can expect the NASDAQ to do the same.
Small Caps
Now, let’s take a look at the small caps. I’ve been in the habit of buying the dips, so I was fortunate here to be buying IWM right around here, and it surged back up. It was up only 0.3%, but still, this was a good comeback. Even if this is a fake or relief rally, there is still some room left to go to get to this natural resistance point [of the 50DMA].
VIX and Volatility
Let’s end this with a quick look at the VIX because the volatility index has been a big part of the story lately. You can see here that, once again, the sellers—or the long vols—just don’t have much firepower to keep the VIX going higher. Fear just gets exhausted quickly. Last week was a big day for it to pop up, but today it’s been melting away.
Currency Markets and the Carry Trade
Lastly, let’s take a look at the currency markets, which are very important. Many stock folks don’t pay attention to this, but the carry trade has been a big headliner. I’m keeping a close eye on the strength of the yen (FXY). While a lot of people are looking at the US dollar and Japanese yen cross (USD/JPY), I’m looking at the Australian dollar and Japanese yen (AUD/JPY). You can see the Australian dollar versus the Japanese yen made a hammer pattern. I was watching this closely as the currency pair crept out of its extended down position. I immediately assumed that buyers would turn the tables on the bears in the stock market, and sure enough, that happened.
Now, we need to see follow-through. But, of course, if there is follow-through, look what happened last time after the carry trade fears or yen strength were done: It resulted in an extended rebound. That’s something to keep an eye on, especially if the Australian dollar versus the Japanese yen gets above this short consolidation pattern.
Conclusion
That’s all the review for today. Check out the blog for more details. I will be writing as usual this weekend. Again, the URL is drduru.com/onetwentytwo/blog. Please leave comments below the video, subscribe, and I look forward to seeing you again. Thanks for checking this out, and have a good one.
And of course, all honor and respect to the victims of the 9/11 terrorist attacks, as this is September 11, 2024.