Looking at the Daily S&P 500 Futures Chart, I’m seeing strong evidence of further bearish trend with the 20 EMA crossing over the 50 EMA.
Potentially, the index may dip to 4130 which is the daily 200 MA level.
Further downside is possible
Looking at the Weekly Chart, I’m seeing a possible further 5% downside for next week(s). Note that we are already -5% down. This would mean total of 10% correction. Beyond that, based on historical – it would seem that a bullish case is more likely over a bearish case. However it would be prudent to wait for a trend reversal sign.
for equities – Dow Jones has already dip about 2% last week. We are at the 20 MA level. This is the first major support level for DJIA.
If this is broken over the next weeks, we will be looking at another 5% dip to 50 EMA
If this is again broken over the next weeks, we will be looking at 10% dip to 100 EMA
i am not optimistic that we will be looking at another 17.6% dip to 200 EMA as we just recovered from a bear market. Usually it takes about 5-10 years between bear markets.
Of course, there is always the positive case that DJIA can rebound from its 20 EMA level and continue on its bullish run as the 20 / 50/ 100 / 200 EMA levels are still in order and overall trend is still bullish.
similarly for SPX,
negative case wise,
for equities – we are reaching the 20 MA level. This is the first major support level for SPX.
If this is broken over the next weeks, we will be looking at another 8% dip to 50 EMA
If this is again broken over the next weeks, we will be looking at 17% dip to 100 EMA
i am not optimistic that we will be looking to a dip to 200 EMA as we just recovered from a bear market. Usually it takes about 5-10 years between bear markets.
Of course, there is always the positive case that SPX can rebound from its 20 EMA level and continue on its bullish run as the 20 / 50/ 100 / 200 EMA levels are still in order and overall trend is still bullish.
Overall for equities , there are more drivers for negative case over the next few weeks/ months due to the uncertainty of the US debt ceiling . You can read my post here .
The inflation play news has been already trumpeted by main stream media for the large part of this year. The market would already have built in the fact that interest rates are going to go up sooner or later.
whatever it is, the time is closing in on using your warchest for a shopping spree.
I have decided to bring forward my monthly market movements analysis for July 2021 by 1 week due to some interesting signs i’m seeing by Mr Market.
First off, I’m seeing equities lagging behind gold in the short-term and mid-term. At the moment I’m leaning towards bear case for equities against gold overall. Now is a good time to start going into gold as an inflation hedge play. Long term wise , I am starting to lean towards bear case for equities as the wedge I spoke earlier is too early to call out in hindsight. The trend is still downwards long term wise.
Equities are also starting to look bearish towards US Bond Yields short term. This indicates Market is pricing in an increase in the US Dollar 10 Year interest rates
When analyzing the three major US Indices,
Mid term wise ,
its interesting to note that DJI is already going through a sell off of 4%.
Until this point, the trend is still upwards.
However, if the 20 EMA crosses over the 50 EMA line and both point downwards,
I will be looking at whether DJI can hold above 33290. if it doesn’t and breaks past 33290, I will be looking at the bear case that DJI may experience a correction of 11% to 20%
The jury is still out for Nasdaq . Do note that It has already hit its all-time high point of 14000! The overall trend is still upwards. I will be monitoring the bull case that it can break out of 14000 and trend further up. The bear case would be that it is unable to maintain its momentum and rebounds down from 14000.
Similarly to Nasdaq, the jury is still out for S&P 500. Overall trend is still upwards.
In conclusion, for the month of July
I will paying attention to DJI as it is exhibiting mid term wise of a potential correction. However NASDAQ and S&P 500 also warrants close monitoring as they are already both over-extended.
Again, consistent with my earlier message would be
start building your war-chest (i.e. accumulate cash)
rebalance your portfolio particularly those too exposed to bubble stocks/growth stocks
look into diversification into value stocks / gold as hedge against inflation play.