Weekly Recap With Technical Analysis (Oct.5-Oct.10)
Another roller coaster week, I’m a little tired of trying to keep up with the “big news”, because nothing lasts more than 30 seconds. The situation is still fluid, and we are three weeks away from November, hopefully, that will remove a lot of the overhang.
A quick recap of the headline news:
- Last Friday, we saw a heavy sell-off in reaction to the positive COVID news. But the market bounced off of 3320 levels and rallied. It was a major shock to the market as people wait for a bit more visibility into this complete binary uncertainty.
- Over the weekend, we got all the headlines around what’s going on at Walter Reed. That gives people a little bit of confidence. Saturday, President Trump says they need a new stimulus deal.
- Monday, headlines over the weekend turned people to all-out risk-on, stock market traded up on Monday. My sense is that there are people looking to put money to work at ~3300 levels, they only need a little positive news to put risk-on.
- Tuesday, Trump called off the stimulus talks.
- Wednesday, Mnuchin and Nancy Pelosi began airline aid talks.
- Thursday, Trump said broader talks are back on and could include a new round of $1,200 stimulus checks.
- Friday, Trump signed off $1.8T counter offer to Pelosi.
It feels like the market keeps shrugging off all these yes-no news and want to rally higher regardless. So where are we?
Fibonacci Retracements to 76.4% Level
S&P 500 peaked on 09/02/2020. From the peak to the trough, the drop was nearly 400 points. Interestingly, the market closed right around 61.8% level on Thursday, a typical Fibonacci level that you’ll hit resistance or support. The next level of resistance will be 76.4%, which the market was getting closer to on Friday but hasn’t hit as of the market close on Friday.
Should the market clear 76.4% level, it might recover all the losses and move even higher.
If the correction is over, how much more can it rally?
Fibonacci Extensions
Short-Term Chart
Measured over this correction (assume it is over), the 161.8% level put S&P 500 at 3822, and 261.8% level put S&P 500 at 4200.
Longer-Term Chart
Measured over the rally since March sell-off, the 161.8% level put S&P 500 at 3822.
Both charts reached the 4100–4200 levels, which is nearly 20% upside from where we are right now.
Can we get there?
Risk-On
This whole week, the market seemed to be in a all-in risk-on mode.
While there was a hiccup on Tuesday when Trump tweeted that he halted all stimulus negotiation, the market just shrugged off all the conflicting headlines and rallied higher.
However, I’m not sure how much longer this excitement can sustain.
Recall that I wrote a September recap last Saturday, October 3, 2020 [LINK HERE], at that point, ADX, MACD, Bollinger band, and RSI all put S&P in the consolidating phase, no clear direction, neither overbought nor oversold.
This week, these indicators are suggesting S&P is getting overbought.
Moving Average, Bollinger Band, and Volume
S&P stayed above both the 50-day and 200-day moving average, but the volume remained below its average levels.
Bollinger band (yellow lines in the chart below): the upper and lower bands are 2 standard deviations +/- from a 20-day simple moving average in the middle.
S&P 500 went back to the upper band this week, indicating overbought as it did when S&P 500 peaked in early September. But prices can stay at the overbought (or oversold) boundary for a while before the sentiment turns.
RSI, Stochastic, and MACD
While MACD didn’t give a clear signal, both Stochastic and RSI indicate that S&P500 is getting overbought.
Conclusion
It is interesting to see that the sentiment shifted meaningfully during this past week. Now it feels like the excitement wants to push the market higher. I will be watching the market do this exercise again next week. Be patient, be careful.
My Technical Analysis 101 Series:
September Recap (Published on October 03, 2020)
Technical Analysis 101: Overview
In this series, I plan to apply several indicators and syncretize them in real-world real-time charts, as the market develops. While each indicator alone is unlikely to provide a strong or decisive signal, Syncretizing them could provide a better picture and increase the conviction level.
Personal Wealth Management
How to Build Your Investment Portfolio in Uncertain Times
In this series, I take a holistic view of wealth management. How to build wealth, how to manage risks, how to execute trades, how to work with your behavior bias, and much more.
