Throughout last week, all the TDST Support levels across all timeframes held up until last Friday. Currently, the S&P 500 (SPX) has recorded TD Sell Setup @9. With this price exhaustion signal, expectations are for the SPX to selloff from here. Note from the chart the SPX can drop to the 3317.17 level from the recent highs and the overall trend would stay bullish. The 3317.17 level is derived from the SPX 60 minute TDST Support level.
The weekly SPX chart recorded a new closing high. Liquidity continues to push equities higher to the point where overbought and sentiment conditions suggest a pullback is necessary. As long as 3317.17 holds, the up trend is expected to continue.
Last week’s bullish action was enough to record a bullish price flip on the weekly S&P 500 (SPX).
However, there are divergences between the primary equity indices on their respective daily charts. The Nasdaq ETF (QQQ) is strong with momentum firmly in place. The small cap Russell 2000 ETF (IWM) is holding on to a TD Sell Setup @4, but showing relative weakness against the QQQ. The SPX is somewhere in between. It made new highs, but the McClellan Oscillator has not supported the new price high.
Since equities are open to interpretation, it is proper to prepare for both a bullish and bearish scenario for the week. Since volatility is still elevated, short term timeframes continue to be deployed. The main premise for the SPX, it is allowed to trade lower for Monday’s session, but should not trade below the 3306.92 closing gap on February 4th. Trades below that would jeopardize the daily SPX TD Sell Setup count.
Plenty of market activity last week. The short term two hour S&P 500 (SPX) can record a TD Buy Setup @9 during Tuesday’s session, setting up a price rebound.
If the 2 hour SPX does not price flip prior to recording a TD Buy Setup @9, this will coincide with the daily SPX as it can record a TD Buy Setup @8 also on Tuesday. Shown as reference is the 3154.19, the classic 5.5% DeMark pullback.
The Russell 2000 ETF (IWM) can also record a TD Buy Setup @9, supporting a price low on Tuesday.
Since the end of January has concluded, the long term monthly SPX shows upside momentum is intact with a current count of TD Sell Setup @5. Shall it continue, May 2020 may begin to signal a deeper correction.
Ultimately for the week. If the two hour SPX can continue to slide until it records a TD Buy Setup @9 scheduled for Tuesday, a swing trade higher would be in the cards. If the 2 hour SPX price flips prior to recording a qualified TD Buy Setup @9, this deviation would require a fresh assessment.
The first sign of a material selloff occurred last Friday, January 24th, off a TD Sell Setup @9 on the daily S&P 500 (SPX). The initial target where buyers would come in would be between 2-3%, which represents a normal pull back inside of a longer bull trend. Note the daily TDST Support level at 3253.05 resides between the 2-3% band.
When volatility rises, TD Sequential works better with short term timeframes. In this case, the two hour SPX is the best representative timeframe at this point. Utilizing that two hour timeframe on the SPX, the current DeMark count is TD Buy Setup @3. The most bullish setup is for the two hour SPX to close above the 3280.69 TDST Support level, and eventually disqualifying the current TD Buy Setup by price flipping bullish before it records a TD Buy Setup @9 count. The most bearish setup is for the two hour SPX to cross under the 3280.69 TDST Support level in the first two hours of trading on Monday, and never closing above it. This would lead to the 2-3% selloff path suggested earlier. This can be achieved by late Tuesday, January 28th. From there, if the two hour SPX records a TD Buy Setup @9 above the daily TDST Support at 3280.69, this is the buy opportunity. On the contrary, if the daily SPX folds, and records two consecutive closes below the daily TDST Support 3253.05, it is likely the SPX is still weak and signaling more selling going forward.
The ideal peak for the S&P 500 (SPX) stated for January 10, 2020 was initially disqualified by violating the short term TD Risk Levels last Thursday, January 16, and officially disqualified the following trading day on Friday, January 17, 2020 by recording two consecutive closes above the 3307.83 TD Risk Level on the daily chart above. (TD Risk Levels can be used as proxies for stop losses). Nevertheless, due to the unabated rally, the next price exhaustion point comes this Tuesday, January 21 or Wednesday, January 22, when the daily SPX can potentially record a TD Sell Setup @8 or @9.
Furthermore, the weekly SPX’s TD Risk Level at 3282.50 is in jeopardy of being disqualified. Another close above 3282.50 will disqualify the significance of that level. However, a close below 3282.50 can have implications similar to January 2018 when the SPX could not maintain two consecutive closes above 2813.29 TD Risk Level.
The Nasdaq ETF (QQQ) is extraordinary. There has not been a price flip since December 6, 2019. The 222.98 TD Risk level is drawn from the recently recorded TD Sell Countdown @13 and TD Combo Sell @13 on January 13, 2020. It also shows the TD Risk Level potentially being violated as well. The surge is clearly unsustainable and needs a bit of pullback.
While the S&P 500 (SPX) ended the week without recording a qualified TD Combo Sell @13 on the daily chart, there enough weakness during last Friday’s session to produce bearish engulfing patterns on many indices. From the two hour SPX chart above, it recorded a simultaneous TD Sell Setup @9 and TD Combo Sell @13, and a minor selloff ensued. If it continues, the 3236.67 TDST Support level is the first level of defense. A qualified break below 3236.67 will strengthen the idea the market is ready to work off the bullish excesses on a grander timeframe.
Now that the S&P (SPX) is managing fresh highs, lots of pending DeMark exhaustion signals are converging across many timeframes. The daily S&P 500 (SPX) just needs one more print higher than 3275.58, a close above 3274.70, and that would be enough to record a TD Combo Sell @13. For the longer term timeframes, a selloff of some sort is imminent. The weekly SPX recorded a TD Sell Setup @9, the 3 day SPX will likely record a TD Sell Setup @9 at the close of Friday’s session, and the 2 day has recently recorded a TD Sell Setup @9. The shorter term timeframes show the 4 hour SPX recording a TD Combo Sell @13. The 2 hour SPX can record a TD Combo Sell @13 and a TD Sell Setup @9 with one more push higher tomorrow. The 30 min and 60 min show similar price exhaustion patterns early in tomorrow’s session.
While next Monday is the primary day for maximum price exhaustion, market is getting too complacent, paving the way for a contrarian view.