When will the current rally fizzle out?

The current rally was of no surprise to those of us who follow momentum oscillators and sentiment work. Things were pretty oversold. However, the extent of this rally is questionable. Today, I list a few of my technical projections regarding the rally.

The chart below is a daily chart. The red horizontal lines represents areas of resistance – which may represent upside targets on the current rally. As I write this blog, the first area at around 3900 is being tested, and is selling off of. Unless the SPX finds reason enough to push it though this 3900 area, we are not going to see more neartermed upside. However, if the SPX breaks 3900 in the next few days, we are looking at an old support/ resistance zone in the 4050 – 4100 area. That would be target #2, assuming 3900 breaks.

On the plus side, note that neartermed momentum oscillator stochastics has some potential upside left in it before it reaches the levels normally seen at the top of recent neartermed rallies. Note also the MACD (bottom pane) bullish crossover and histogram’s move over the 0 line. This is bullish. RSI often reaches around 60 on the daily chart during a neartermed rally. Its not there yet (around 50 as I write). So, those factors might suggest at least some potential for a test of “target #2 near 4050.

Either way: My view is that second target is the most we can hope for. Perhaps the recent test of 3900 is all we get. We shall see. I do not yet see much chance of a true bear market bottom, yet. In fact, I still target about 3400-3500 on the SPX as the end-game downside target. Recall from my Technical Analysis Course: A bear market is characterized by lower lows and lower highs, and a price that remains below its 200 day moving average (red line, below). Something big is going to have to happen to change the reality of the current bear market, and for the bull to resume.  Like a Fed statement of slowing rate rises.

That’s a ways to go, yet. See my 3-steps blog from the weekend here. Until the Fed & BOC start hinting at slowing the monetary tightening, combined with a basing action on the charts, its just rallies within a bear.

 

Of note

  • From US financial analyst Larry McDonald of Beartraps: After 5 years – Shutting Every Possible Investment Avenue Down — Sad Comedy, too little too late. CANADA’S PM TRUDEAU: CANADA LOOKING TO EXPAND ENERGY INFRASTRUCTURE
  • I noted in my last blog that I would be posting a political rant. I’ve decided not to post this rant for now. Truthfully, its getting scary out there. Canada has moved closer and closer to a totalitarian state.  I am deeply concerned for Canada’s future. I’m a contrarian and a skeptic by nature, and I enjoy digging deep and analyzing crowd-think behavior.  Recall my myth-busting Healthcare blog.  Over the past few months, I have been uncovering lesser known facets of the current government that are, quite frankly, disturbing. I suspect that certain individuals wouldn’t want these facts to be widespread. However, until true freedom returns to Canada, I’m hesitant to write about them. Those Canadians who question authority are being censored, and worse. I will leave it to those brave freedom fighters to continue the fight, and will support them from the sidelines.

10 Comments

  • Keith, thank you for providing your thoughts on the near term possible resistance levels. Can you please remind me of your thoughts on oil and Canadian oil companies?

    It seems to me from previous history that you have referred to, that when markets tank (Aka when we have that big washout) that oil stocks will sell off (again) with the “baby and the bath water” sentiment. After that, historically, or in your opinion, will oil and oil producing stocks likely go up from there or will oil prices then go down because of lack of demand caused by a recession/fear of a recession despite of the tight supply oil market now? Also, any thoughts on NATO’s plan to cap the price of Russian Crude? I’m trying to understand. How can they cap the price of Russian Crude? Isn’t Russia already selling at a major discount to China and India? Wouldn’t Russia just turn off the taps to countries imposing this “price cap”?
    And if they did somehow impose this price cap, does that then lower or limit the price of Brent crude around the globe?

    You mentioned in your blog that something big would need to happen for a big downdraft to put in the bottom. The FED announcing the slowing of monetary tightening would likely trigger the start of the new bull market, which isn’t likely for awhile. But to get to the bottom, what are some scenarios that might get us there? Like continued rising CPI data triggering loftier interest rate date renewing recession fears? Or some geopolitical event? Thoughts?

    Reply
    • That’s one big question Wendy!
      Ok–my simple answer: to form a bottom, you need despondency and capitulation. To form a base you need “green shoots” of hope. That might be the rate rising originally slated for 0.75 points to 0.50. To form a bull, you need (per EWT) initial smart money buyers – followed by the crowd.
      I can’t say much about NATO and crude policy. Its going to be a guessing game.

      Reply
  • Keith, your comments re censoring and individuals not wanting certain facts known sounds almost like you are frightened to publish them. That sounds more like Russia. Surely it’s not that bad is it? If so, I just became even more frightened myself. Bad yes but I didn’t know it was that bad.

    Reply
    • Fred– suffice to say that yes, there are reasons to be concerned, and reasons why I am tapering my rants. I will still be criticizing financial/economic policies. I will spare no mercy there. But- I will not present the issues I have uncovered that lie behind the curtain. All I can say is…This is not like any government we have witnessed. Don’t get me wrong–All governments to some extent are self serving, and many do dirty deeds on the side. Heck, even Chretien government, who I admired for their fiscal policy, was involved in the sponsorship scandal. But the situation now is much deeper. Its different this time. And its going to be tougher for the truth to be known by the public (traditional media is already owned by the government via a $600MM bribe)…With C-11.

      Reply
  • Dear Keith Are you familiar with Larry David. In a skit he wanted to be alone so he wore a maga hat to repel people.
    Do you really want to alienate your audience. Everyone is entitled to opinions. Ranting works for Thackery but for some reason it doesn’t work for you. Carrigan once said investment decisions should not be made on politics. That is what technical analysis is for. But thank-you for warning us when you are going to rant. JD

    Reply
    • Janis–agreed that TA comes first! However, I have been purchasing institutional research for the past few years dealing with political trends, and it has helped me significantly with the set-up behind the technical formations I see. So I don’t agree with Carrigan completely, except that the trade cant be made exclusively on politics.
      I like to say this about using politics as a trading setup: “You cant fix stupid- but you can trade against it!” That is literally how I have been trading oil and other developments lately. Against government stupidity and ulterior motives (capturing votes vs. making decisions based on reality). Chart tells the move -and must come first, but the politics tells us the ultimate potential of the move. On some things, anyhow. To that, my next blog is on the outlook for oil.

      Reply
  • Keith, according to Powell, the fed is committed to raising rates to fight inflation and is willing to risk causing a recession in the process. Do you think a recession is priced in at this point already and confirming the fact should lift markets? A Wall St. firm is predicting the S&P to drop another 10% from here which is in line with your predictions.

    I guess the key is going to be timing. The Fed expects to raise rates until the end of the year and continue next year if necessary. Since they’re in catch-up mode and higher rates take time to work their way through the system wouldn’t it be a realistic expectation to not see an easing of inflation for at least 6 months to a year?

    I was looking forward to your JT rant. Can’t you at least email it to your subscribers? I’m sure it was mostly drafted.

    Reply
    • George–I just finished a blog that talks about the timing and strategy surrounding your very inflation/recession question.

      Re the JT blog–I would LOVE to publish it, but its so revealing that I beleive it would spur some aggravation and attention by the wrong people – I would rather avoid the trouble – especially with bill C-11 coming. So, the material that I have uncovered will not be sent to anyone. You’ve seen the vengefulness towards some independent news people, and anyone who poses a threat to their narrative – I don’t need that stress. Trudeau has achieved his “basic dictatorship” goal of ruling through fear and censorship.

      Reply
  • I know you are looking at gold in positive way. With the price action the last few days and especially today, are you still seeing positive momentum? I am possibly looking at unwinding my trades as the US dollar seems to be strengthening. The line in the sand for the GDX is $28.40. That will surely be taken out today.

    Reply
    • Dave–I am posting a blog today that mentions the idea of a longer termed (say, by year end) weaker USD. That would help gold. So, if you have patience, it might be worth the stay. If not, you have to make the call.

      Reply

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