Monday, November 23, 2020

Equities are now in the realm of a good sized correction from an intermediate/long term view as displayed by the weekly charts for the major indices. First, the weekly S&P 500 (SPX) recorded a TD Sell Setup @9 ending September 4th and has been trading sideways. This is the classic definition of TD Sell Setup as 9 counts pauses the momentum before taking the next path higher or lower. The weekly close also gave us a bearish candlestick pattern highlighted in the chart’s gray circle above. The pattern formation is a doji candlestick followed by a bearish engulfing pattern. If this plays out immediately next week, the first bearish confirmation is trading below 3536.76. More details on that level later.

Next is the weekly Nasdaq ETF (QQQ). The QQQ recorded a TD Sell Countdown @13 ending October 16th. While the chart itself looks constructive, the TD Sell Countdown @13 serves as an active warning as long as the QQQ stays under 309.21, the TD Risk level. Another bearish signal can be added if a TD Combo Sell records a 13 in the near future. If this were to happen next week, the requirements would be a weekly closing high above 294.61 and a high print at 299.14 or higher. 

Lastly, the weekly Russell 2000 ETF (IWM) is one week away from recording a TD Sell Setup @9 which is another warning. Putting all three indices together indicates a material selloff is ready to go.

For the short term – Seasonally this part of the year should be bullish and that is the current stance through the end of the year. By then, the weekly charts shown above should be fully maximized on their respective counts. If this view is deemed incorrect, it will show up early in the week by breaking below 3536.76, which represents the 30/60/90 minute TDST Support levels. Note a qualified break below that level is a vacuum which provides the SPX potentially to drop to the two hour TDST Support at 3272.09. 

If bullish seasonality does plays out, the daily DeMark counts will recycle higher. The first indication would see the SPX trade above 3634.75. Reiterating, the current status is to expect more upside, but with the weekly charts in price exhaustion territory, it’s prudent to stay cautiously bullish. Add the current environment of speculative excess with FOMO trading in EV stocks, and the put/call ratio down to extreme levels, it puts the market in topping mode. If we have it our way, a return to volatility will begin year end or the first part of 2021.

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