S&P500: Still Trending Down

Technicals | Mar 20 2020

Bottom Line 19/03/20

Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 2347 / 2085
Resistance Levels: 2722 / 2950 / 3137

Technical Discussion

Reasons to revert to bearish:
→ S&P 500 earnings have overall been well supported yet upcoming quarterly results will be severely dented
→ Elliott Wave count continues to have motive bigger picture yet now in danger of failing
→ larger retracements have been healthy and well supported to this point
→ Covid-19 virus scare a potential longer term bearish catalyst

Obviously global markets are presently in complete and utter turmoil. From an Elliott Wave perspective though, price action can still remain secular bullish / cyclical bearish, if 2571 can continue to hold from here. It sounds like we might be clutching at straws and being overly optimistic, yet the theory we follow the rules to keeps the bullish argument on the table above 2571.

The above from our review only a week ago, which has now failed. Simply revealing how quickly price action is moving to the downside at the moment. The speed of this move is pretty much unprecedented. So we are back onto the monthly chart tonight to try and get a handle on an interpretation of the larger trend positioning. No easy task I can tell you ! Elliott Wave is about prove and disprove. Price action had been proving for us since the 2009 lows locked in, so it has certainly been a ride and a half up until now.

Tonight we are going to throw out there one last interpretation that could be going on here which will keep things secular bullish if some numbers continue to hold. We are clearly cyclically bearish so even if our numbers do hold here, this is going to take some time to recover from – months if not years. So as you can see on our chart we are now running with two interpretations. The first is that a higher degree Wave-[3] is locked in at the highs and we are now witnessing a higher degree Wave-[4] unfold. It does have symmetry issues admittedly, and I will be happy to fail this as well if the 38.2% – 50.0% price range fails to hold. And these numbers come in at 2475 and 2195 respectively. Last night price tagged 2280 so there is little room for further downside from here. Wave-[4]’s often travel back down to the Wave-(4) of a lesser degree lows as well, which is exactly where price is now. So if this interpretation is to prove correct, then we are looking for a bounce almost immediately from here, and a decent one at that. The other option on our chart is that a significant high is now in place that will likely hold for a many number of years to come. We will start discussing this option in more details post 2195 failing to hold.

It’s been a longer review than normal tonight due to things being at a very critical juncture. Yet this is one more thing I’d like to bring to your attention, and that is volume. On our chart tonight take a look at the volume bubble in 2003 and then again in 2009. They both reflected stopping volume that eventually locked in major low points. Already in March 2020 we are seeing above average volume come in to play, and we still have two weeks to go. We will be watching this very closely from here.

Trading Strategy

Interesting to note that our Global Research Areas closed trades for 2020 is sitting at a 70% win rate. So how can this be the case with so much turmoil going on? Well all we did was trade what was in front of us from an Elliott Wave and pattern perspective when stocks and markets were triggering bullish late last year. Yet the key at the end of the day was risk management. It was nothing special coming from me I can assure you. Yet it is a great lesson for novice and experienced traders alike to understand that risk management is what trading is all about. And it is the only thing we can actually control when it comes to our trading. So the majority of the trades we took on late last year were simply stopped out for profit by our trailing stops, before markets capitulated to the downside. What has happened over the last couple of months no one saw coming. Personally I had no idea. Yet by having a strict risk management strategy in place, we are now sitting in cash, and we live to trade another day. Risk management is everything !

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