StrayDog's Weekly Analyses, March 29, 2020

Another volatile week on the markets behind us. FED stimulus, US coronavirus 2 trillion dollars bill signed. Oil still nowhere near recovery, and more and more people infected by the virus.


For next week, these are scheduled data releases:

Data from China and later US Unemployment and NFP report, are the most important.


Moving on to charts.


Chart #1 - ES_F vs. NQ_F Weekly

Difference between ES_F and NQ_F. Nasdaq 100 Futures bounced from Weekly 200 SMA. Nasdaq showing relative strength compared to SnP Futures.


SPX found resistance on a backtest of WMA200, and on 38.2 fib retrace of the downmove from the ATH.


Chart #2 - Crude Oil Monthly


Crude Oil below $26 and next Support is $17.12 from 2001. On your own - observe PA on Daily chart... weakness. It could go under $20.


Chart #3 - VIX Weekly

VIX still with values from GFC of 2008.


All previous charts are not bullish for the stock markets. Stimulus given, some of the biggest up days ever (like last Tuesday), - we got bear market rallies, but ARE WE JUST IN THE BOTTOMING PROCESS?


Chart #4 - SPX and DAX Daily, bottoming process of 2009


Let us remind how bottoming process of GFC 2008 looked like. After the 2008 low, there were MONTHS of bottoming process, until a LOWER LOW. And it was PAINFUL, let me tell you that, as a survivor of GFC.


School book DOUBLE BOTTOM looks like this above. Second low is lower low with bullish divergence (MACD and RSI on the chart above). Also - VIX is higher on the first low, and lower on the second, lower low. That is important.


Very good explanation of this, you can find in the video by Chris Ciovacco: Stocks: Bottom In Or Much Lower Lows?



Chart #5 - DAX Futures vs. DAX Cash Index Daily


Here we can see gaps on Futures and on Index, and difference between Fibonacci retracement levels. On Futures, 38.2 fib retrace from the ATH is at 10,206 - while on Cash Index it is at 10,371. This difference is due to the fact that so far, both ATH and current low were made outside RTH session, and that ATH on Futures is higher than on Index, and low is lower than on Index.


Final thoughts

As written in MORNING NOTES for Friday, Mar 27th: Common thing on both DAX and SPX is proximity of 38.2 fib retrace of complete down move from the ATH, and good resistance above this. We can expect sellers active there, it is just a question of how strong or weak their reaction can be, and for us – even more important question would be where exactly we can expect them. Markets can fail in front of resistance, but usually will go a bit higher and make an upthrust. And upthrust can be large as well.


So, both SPX and DAX backed away from resistance level close to 38.2 fib retrace. Wide area of resistance on SPX is 2650-2750. Important level is 2715, that is -20% from ATH.


IMPORTANT: Nobody knows where market is heading next. We can make scenarios and trade them as they develop.

Scenario #1 - markets failed in front of resistance on Friday, and rolling down has started. Scenario #2 - markets will make an upthrust (false breakout) of resistance above (For SPX 2715-2750, for DAX area around 10400) and then swiftly move lower. Scenario #3 - markets making a breakout, heading toward halfback or other resistance of the entire down move from ATHs


None of this scenarios is not including the possibility of bottoming process mentioned above, since "V" reversals in Bear markets are very rare. We got a "V" reversal on Dec 2018 low, and that is an outlier, AND SPX spend a day in the -20% territory, so was not in the real Bear market. Note that stimulus was given on GFC 2008 also, but it took some time for that to kick in.


Be nimble and flexible, and stay open for the lower lows.


 

In short term trading it is very important to properly understand context heading into every day, to know from which side wind is blowing - who has the short term control, and which side will be forced to liquidate IF and WHEN market hold above or below a certain level. What is the level of volatility, what can we expect from any particular day, what market already done in premarket session, what possible setups can be available, and so on... the things that we constantly learn in the DAILY DOSE OF DAX. Cheers, StrayDog