The stock market ran into resistance this week, and now it’s turned back.
It looks like the bear is taking another swipe at stocks – sending them back down to their February lows… or below.
Take a look at this daily chart of the S&P 500…
The bears have been in charge since late January. That’s when the market broke down from a parabolic move and entered a correction.
Corrections tend to play out in either three or five moves – what technical folks call “waves.” The first leg down for this correction happened in early February (point A). Then we got the rebound to point B on the chart – which formed a lower high and completed the second wave. The late March decline, which retested the February closing lows, was the third wave (point C).
Frankly, I thought that move was going to mark the end of this correction phase. But the rally off of the March lows ran into trouble last week when the S&P 500 challenged the resistance of its 50-day moving average (the squiggly blue line on the chart) and the downtrend line connecting the January and March highs.
Based on the bullish look of the 60-minute chart I showed you on Monday, I expected the S&P 500 to break above resistance. Instead, after a couple of attempts to rally Monday and Tuesday morning, the market reversed course and headed lower.
It appears we are now in the midst of the fifth wave of this correction phase.
The good news is this should be the final wave for this correction. The bad news is there’s no telling what price level this wave will end at…
The index could just retest the 2580 level again as support. That’s not too much lower than where we closed on Tuesday (2634). Or, if things get really ugly, the index could break the 2580 support line and crater all the way down to the 2450 level – which lines up with the low from last August.
Either way, it looks like there’s at least a bit more downside ahead.
For now, this is just a correction. It’s not the start of a bear market… yet. So, I’m still looking to use this correction as a chance to buy stocks when they reach extremely oversold conditions.
Best regards and good trading,
Jeff Clark
Reader Mailbag
Today, more happy letters from Delta Report subscribers…
Hi Jeff, first of all I’d like to inform you that while still within the 60-day subscription trial, I decided to forgo the remainder of the trial period and upgraded to a lifetime subscription!
I appreciate the hard work and the consistent approach as is reflected in your “streaming” analysis. I also like your sharing the doubts with us and you’re not rushing into trades just to appear “active.”
I also like the $1,300 net I made from closing positions (lost on one, gained on nine). Keep the good work!
– Yak
Jeff, you saved me a ton of money one day before options expiration this month. I had two options I was on the fence on as to whether to let them expire or close them out for a smaller profit before expiration. Your comments on the market at that time convinced me to close them out early for smaller profits one day before expiration. Both stocks were crushed the next day. Thank you, thank you, and thank you!
– Gene
Good morning Jeff. I have been trading for 10-20 years, off and on. Owning a small construction business and suddenly experiencing some extremely slow periods after massive growth, we sold the bulk of our portfolio out about 10 years ago to keep the business running. I have been back into managing our portfolio again since last summer and have a 15% increase so far, but I am really enjoying your options recommendations.
I have read a couple of books and found options interesting but unclear so far – as you have stated most new traders do – so I have started out slowly as you recommended but am eagerly working to larger investments. I have been reviewing your training videos and it seems to be starting to make sense; however, I do not trust my instincts quite yet as I only intended to mimic your trades until the “light comes on” to prevent any major mistakes.
– Dora
I have subscribed to your course for about a month and it is great. I have seen positive cash flow, thank you. I also trade the ES S&P Future on NinjaTrader. I started with trying to read candle sticks but it did not work. I just lost $500 today and have realized I need a better way to go about trading the ES.
Mr. Clark references the correlation between S&P and other markets and then the market moves in that way. I am looking for an intraday set up or some help on what to look at so I could have a better understanding. Thank you very much and thank you for my portfolio growth as well.
– Domenic
And a response to Monday’s issue, “This Is a Buying Opportunity”…
Sorry dude, if you went long, you got suckered into one of the oldest tricks in the book. 🙂
My analysis tells me that the market is in a downtrend. And as such, any breakouts to the upside, of any pattern, have higher odds of failing and offer a great short opportunity, as many traders should get trapped. Therefore, I was looking to short the breakout above this reverse head and shoulders pattern that you refer to.
I am not knocking you or bragging because you have great analysis. I mention this because I find it ironic how two analyses can be so different – or game plans based on the analysis, because we both saw the reverse head and shoulders.
– Wade
Thank you, as always, for your thoughtful insights. Keep them coming right here.