Major indices closed January with overwhelmingly bearish candle formations. The market is expected to go lower in February, possibly much lower.
This MARKET WEEKLY contains the charts and covers:
– SP500, Nasdaq, Dow Jones, Russell 2000 – Japanese Candlesticks – analysis of monthly and daily candles and TA;
– short and long term charts and forecasts for SP500.
In my weekly update I mentioned that “there is no way NDX and RUT are going to negate the bearish Engulfing on the last day of the month. DJ and SPX could mitigate the bearish odds, but they will not be able to fully overcome them.”
It happened today exactly as discussed. Let’s begin with the worst.
RUT completed a very strong bearish Engulfing. The price moved below the monthly 20 EMA level on a high volume. MACD crossed the signal line and the histogram turned negative. PSAR flipped bearish.
NDX made a similar bearish Engulfing that closed below 8 EMA for the first time since March 2020. MACD is about to make a cross.
SPX formed a bearish Engulfing on a RSI breakdown from overbought. Gold made a similar signal on the weekly frame in August 2020, leading to a 20% decline in the following months. SPX has just done it on the monthly frame.
DJIA has made a Dark Cloud Cover which would require a confirmation, but, technically, a continued move down would be supported by indicators.
The weekly candles were discussed on Jan 29 in the Market Weekly and in the video: https://youtu.be/i4CAMjRHeWc
The daily candles are bullish and indicate a rally. However, from the monthly candle perspective, this rally is expected to be a short-term one, lasting 1-2 weeks at most. Then the bearish odds will kick in.
The monthly update was posted here:
ELLIOTT WAVES – SP500
As the worst bearish formation – Engulfing – already happened on the monthly, the odds are increasing for this long term bear scenario.
Detailed forecast: https://investingangles.com/2022/01/20/sp500-long-term-forecast-bear-case-20-01-2022-spx-spy-sp500-es_f-elliottwave/
At the micro level, there are several paths I am tracking:
- Purple (primary).
SPX moves horizontally or slightly upwards for 1-2 weeks before moving lower.
In this scenario, $4500-4680 would be the most typical targets. However, an advance to new ATH will not break the structure. So far, I view the wave off the lows as corrective.
SPX makes 5 waves down. This would be an extremely bearish scenario, because this wave would be only the wave (A) of a much bigger correction.
SPX develops a motive or a diagonal wave off the lows.
As one more reference point, yesterday I posted this Alarm (not an Alert) on ASX after their monthly closure:
Expect SP500 to move lower in February, most likely in the second half.
Long Term Target: $3100-3400, or 30-35% loss off the top.
Minimal target – $3800 or 20% loss.
The indices could rally in the next 1-2 weeks, the rally could possibly experience many unexpected movements (see-saw).
Short Term Target: $4500-4680.
Keep in mind that this is an attempt to forecast a wave B, the most unpredictable among the corrective waves.
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