Stock Market Bottom Or Bull Trap? The Wyckoff Method Reveals Insights

Last week S&P 500, Dow Jones, Nasdaq and Russell 2000 all broke below the major support and dropped sharply into an oversold condition. This sharp move was anticipated just right before it happened based on the bear market leading indicator as I discussed in the video at the bottom of the post.

Using Stock Market Breadth As Market Timing

On Friday all the 4 indices had a strong rebound off the oversold condition. This is significant not because of the magnitude of the rally, but the market breadth because the difference between the number of stocks hit 52 Weeks High and 52 Weeks Low spiked from -1600 to -160. This is a sharp turn from a very bearish market breadth to almost neutral as majority of the stocks participated the reversal. Refer to the market breadth chart below:

From the chart above, the spike of the market breadth after 24 January 2022 and 24 February 2022 (circled in orange) corresponded to a swing low in S&P 500. A market rally can be expected based on the current market breadth. Next, we need to determine the quality of the potential rally to anticipate how far it can go.

Wyckoff Method To Identify Bear Market Bottom

Let’s apply the Wyckoff method to find out if this is likely a stock market bottom or a bull trap by focusing on the price action and the volume. Refer to the chart of S&P 500 Futures below:

The bearish bias of S&P 500 was formed after the selloff happened in January 2022. Subsequently, a Wyckoff re-distribution pattern was formed (as highlighted in orange). After the upthrust after distribution (annotated as UTAD), the rallies were of poor quality and the down swings were impulsive and volatile with increasing of supply. These are the key characteristics of a bear market leading to a sign of weakness (annotated as SOW).

The confirmation of the strong down swing was identified after the weak rally on 18 April 2022 (annotated as LPSY 0) where I explained in detail about the bearish signal detected from the Wyckoff distribution pattern in the video.

Last week S&P 500 broke below the major support at 4100 followed by a sharp move down below 3900 within 4 days, which marked a sign of weakness from the re-distribution structure. Despite the sharp move down, climatic price action and volume did not show up, suggested pending institution capitulation. This is a key difference when comparing to the selling climax low formed on 24 January 2022.

There was presence of demand on last Thursday as reflected on the demand tail and the slight increase of volume while the price hit the oversold of the down channel. This was confirmed by Friday’s price action. This is likely the relief rally to test the axis line near 4050-4100 where the support-turned-resistance.

The resistance zone coincides with the supply line of the down channel, which could potentially form the last point of supply (annotated as LPSY 2) where the supply will be attracted for institutions to sell into strength (as annotated in green arrow) followed by lower price target at 3600 (and lower). This could be similar to the bear market in 2008 from the price structure to the market rotation sequence as discussed in the video 2 weeks ago.

The Leading Indicator In Bear Market

As mentioned earlier, watch the video below find out how to use this leading indicator in the bear market as early warning before the sharp move happened last week (and beyond) in S&P 500.

Based on the characteristics of the price action and volume, selling into strength to avoid bull trap is a better bet. Under a more bullish scenario where the current rally is strong enough to test 4200, a trading range could be anticipated rather than a continuation of the selloff to test 3600 in the short-term. Visit TradePrecise.com to get more stock market insights in email for free.

Bear Market Leading Indicator Signals Potential Sharp Move Ahead

S&P 500 experienced more than 10% drop in January 2022, which was considered a sign of weakness from a Wyckoff distribution topping formation. Yet, multiple red flags were provided as early warning via this leading indicator – Russell 2000 near the end of November 2021, at least 1 month before S&P 500 had a sharp drop of more than 10%.

Russell 2000 As A Bearish Leading Indicator In 2019

From 26 September till 1 October 2019, Russell 2000 had a failure of the backup action where there was a break down, test and a confirmation (highlighted in orange circle) of the intermediate support level at 1700 while S&P 500 had a breakout attempt, as shown in the chart below.

On 10 October 2019, Russell 2000 broke below the support of the swing low at 1630 with a bearish momentum bar (second orange circle) while S&P 500 had a failure of the breakout. These two events were the red flags served as early warning of the weakness in the market as Russell 2000 led the way down.

Subsequently, Russell 2000 broke below the support at 1460, tested the support-turned-resistance followed by a reversal from 7-14 December 2019 (third orange circle) to start the selloff going into Christmas. The breakdown in Russell 2000 was a leading indicator despite S&P 500 was testing the support (highlighted in orange circle). Eventually S&P 500 also broke down and had a sharp selloff of 10% in 6 sessions, similar to Russell 2000.

These distribution pattern back in 2019 were similar to what’s currently unfolding in 2022 as explained in the Wyckoff upthrust video 3 weeks ago.

Anticipate The Selloff of S&P 500 With Russell 2000

On 26 November 2021 Russell 2000 futures had a failure of the backup action where the bearish momentum bar (highlighted in orange circled) committed below the resistance-turned-support near 2310, as shown in the chart below.

The failure was significant as it triggered a selloff with the largest down wave within the trading range between 2100-2300. The heavy supply accompanied the down wave was a sign of weakness where there was distribution on the way down, which marked the beginning of distribution.

This is a variation of the classical Wyckoff distribution pattern where the bearish bias is only formed after the sign of weakness. Refer to the Wyckoff distribution analysis video for S&P 500 to find out how to interpret the bearish structure with the volume and at what circumstances will it be violated.

While Russell 2000 formed the first sign of weakness (annotated as SOW0) followed by a re-distribution structure, S&P 500 futures only began to form a distribution structure as a topping formation. This was the first red flag where Russell 2000 led the way down before S&P 500 as the small cap stocks were distributed.

On 18 January 2022 Russell 2000 broke down from the re-distribution structure (annotated in pink rectangle), also coincided with the support level at 2100 from the big trading range started in March 2021, which was the second red flag as early warning of the market selloff. Another wave of selling (annotated as SOW1) started in Russell 2000 after the break down while S&P 500 experienced its first correction (annotated as SOW0) of more than 10% off the peak.

Subsequently another potential re-distribution structure formed from 24 January 2022 till now. In the past 2 weeks, Russell 2000 broke down the support near 1900 followed by 2 failed attempts to rally back up while S&P 500 was still testing the support area, which was similar to the scenario in 2019 as elaborated above. This is another early warning from Russell 2000 regarding the market weakness.

Stock Market Crash Analogue: From Price Structure To Market Rotation Sequence

Apart from using Russell 2000 as a bear market leading indicator, the price structure and the market rotation sequence are very similar to the stock market crash in 2008.

Watch the video below to find out the bearish scenarios you can expect based on 2008 global financial crisis and at what point will these scenarios get violated and turn bullish.

As Russell 2000 has been leading on the way down in the bear market as explained above, S&P 500 is likely to break below the support at 4100 to kick start another round of selloff with a sharp move down, which might be like in January 2022. Visit TradePrecise.com to get more stock market insights in email for free.

Stock Market Crash Déjà Vu? Follow This Market Rotation Sequence

Since the topping formation manifested in January 2022, S&P 500 has dropped 14% off the peak with increasing volatility both to the upside and to the downside. This is mainly due to the unfolding of the Wyckoff distribution pattern (as explained in the video before the selloff happened in the past 2 weeks) and the stock market rotation where the smart money flows from the growth theme and the technology sector to the defensive sectors like consumer staple (XLP), utilities (XLU), health care (XLV) and the commodities including the energy sector (XLE).

Stock Market Rotation During Wyckoff Distribution

The outperformance in the energy sector since January 2022 is especially obvious as shown in the comparison chart between S&P 500 E-mini Futures (ES) and the energy sector (XLE) below:

Since January 2022, S&P 500 experienced a selloff as a sign of weakness followed by a weak rally while the energy sector (XLE) rallied up to all time high (highlighted in green).

Since 21 April 2022 XLE had a biggest down wave (highlighted in orange), which is considered as a Wyckoff change of character to stop the uptrend into a consolidation or even a reversal. This is a significant event because this kind of the stock market rotation is similar to what happened during Wyckoff distribution in 2008 before the market crash. Refer to the chart below:

In late 2007 S&P 500 formed a topping formation followed by a break down as a sign of weakness. In January till May 2008, S&P 500 had a weak rally up barely tested the axis line where the previous-support-turned-resistance while the energy sector (XLE) created a new high (as highlighted in green).

The next selloff in XLE (highlighted in orange) signaled a breakout failure, which is also a Wyckoff change of character that led to a reversal. This is similar to what’s currently unfolding in XLE as shown in the first chart. The market rotation sequence during the Wyckoff distribution phase is almost the same in 2022 and 2008.

Wyckoff Distribution Pattern in S&P 500: 2022 vs 2008

Let’s compare the price structure of S&P 500 in 2022 and 2008 to find out the similarity of the Wyckoff distribution pattern, as shown below.

From the top pane, S&P 500 had a Wyckoff distribution formation formed by the end of 2021 followed by a break down (highlighted in red) in January 2022 as a sign of weakness (SOW1). The stock market breadth at that time also confirmed the bearish bias as I discussed in the video.

The subsequent price movements including the automatic rally (AR), potential upthrust after distribution (UTAD) and the sign of weakness (SOW2), which is still unfolding, are similar to 2008’s as shown in the bottom pane.

Now the S&P 500 is testing the last line of the support at 4100. Should 2008’s price structure be a decent analogue for reference, a last point of supply (LPSY) as a weak rally (highlighted in orange) can be expected before the market collapse.

S&P 500 Price Prediction When Market Crash

Check out the 2 bearish scenarios that lead to a market crash with the price target and what you can expect for S&P 500 to violate this crash (at least for the time being) in the video below.

Although there was presence of demand shown up last week in S&P 500, the bull needs to prove itskself to rally away from the vulnerable area and to at least commit above 4300 to avoid the bearish scenario to crash below 4100. Visit TradePrecise.com to get more stock market insights in email for free.

S&P 500 Could Tank Another 14% As Wyckoff Distribution Pattern Is Unfolding

Last week S&P 500 attempted to reverse and rally above the resistance level at 4500 followed by a false breakout on 21 April 2022, which was a Wyckoff change of character bar (also happened in gold and crude oil as illustrated in the video) to start the downswing.

Wyckoff Distribution Pattern for S&P 500: Structure Analysis

Since the topping formation formed in November 2021, distribution in S&P 500 was manifested after the upthrust after distribution (UTAD) event in early January 2022 followed by sharp selloff as a sign of weakness (SOW) in late January 2022. Refer to the chart below for the Wyckoff event:

The sign of weakness in S&P 500 served as the largest down wave, signaled a damage of the uptrend since COVID-19 low in March 2020. The selling climax low on 24 January 2022 together with the automatic rally (AR), which was a technical rally formed after an oversold condition defined the range bound condition between 4200-4600.

The directional bias for the potential trading range as it was folding was bearish because of the sign of weakness as a result of the distribution structure in late last year. On top of that, the stock market breadth also shows bearish clue as discussed in the video.

The strong rally in mid of March 2022 created a Wyckoff upthrust (or a false breakout) followed by increasing of supply in the down wave, which pointed to further weakness for S&P 500.

Bearish Signal In S&P 500

Refer to the video below where you will find out how to identify the bearish signal based on the Wyckoff upthrust and the bearish volume pattern before the sharp selloff last Thursday and Friday.

S&P 500 Price Prediction With Point & Figure Chart

While S&P 500 is still within a trading range of 4100-4600, the directional bias is still bearish until proven otherwise. Based on this potential distribution structure in the trading range as it is unfolding, Point and Figure chart is adopted for price target projection for S&P 500, as shown below:

Should S&P 500 break below the support at 4100 formed by the swing low in February 2022, followed by the inability to rally up above 4280, selloff can be expected to test the lower target.

Based on the point and figure chart projection, there is enough causes built for S&P 500 to test 3650, which is another 14% drop. This is also the previous support level where the accumulation structure formed in 2020. This could be the low where the bulls are hoping for should it happen.

To violate this bearish scenario, S&P 500 is to reverse the downswing and rally above 4400, 4500 before committing above 4600 followed by a shallow pullback as a test. Otherwise, the directional bias is still to the downside for S&P 500.

Since the Wyckoff change of character bar showed up on 21 April 2022 in S&P 500, leading industry groups such as oil and gas, gold miners, commodity milling, agricultural chemical, coal, etc… also experienced a sharp selloff despite the outperformance such as in crude oil and gold futures.

This suggests at least a pause in these leading industry groups if not a reversal yet. Ultimately, this is still a stealth bear market with lots stocks already dropped 50-80% despite S&P 500 only dropped 11% year to date. Visit TradePrecise.com to get more stock market insights in email for free.

Wyckoff Upthrust And The Volume Pattern Signal More Weakness Ahead In S&P 500

On 31 March 2022 S&P 500 E-mini futures experienced a Wyckoff upthrust (UT) of the previous resistance created by the automatic rally (AR) in early February 2022. This was the fist red flag of the beginning of the down swing to test the support.

The Wyckoff upthrust or commonly known as a false breakout is a typical event where the smart funds sell into strength to unload their positions while the majority of the retailers buy into the euphoria because of fear of missing out on the strong rally.

Wyckoff Upthrust Pattern Explained

Since mid of February 2022, S&P 500 showed the inability to follow through to the downside with a shortening of the downward thrust despite the bearish sentiment, suggesting supply absorption in progress, which was confirmed by the short-covering rally in March 2022.

The short-covering rally was over-extended and a Wyckoff upthrust (UT) showed up on 31 March 2022 where the breakout of the resistance formed by the automatic rally (AR) was violated. Increasing in supply was observed in the volume during the upthrust. Subsequently, the downswing was accompanied by high consistency of supply together with a widening of the price spread suggesting supply is dominating. Refer to the chart below.

Failure to commit above the axis line at 4450 where the support-turned-resistance signals continuation of the downswing. Should the support area between 4380-4400 fail to hold, S&P 500 is expected to test the next support area at 4200-4280. So far, S&P 500 is still trading between a big trading range 4100-4600 as defined by the selling climax (SC), secondary test (SC) and automatic rally (AR).

The directional bias is still to the downside because of the sign of weakness broke below 4600 back in January 2022 until proven otherwise. Market volatility is still excessive, which is not part of the characteristics of a Wyckoff accumulation structure. It is useful to adopt the Wyckoff method analyze the characteristics of the price action such as the price spread, velocity, and progress together with the supply and demand as reflected in the volume to form a directional bias as the big trading range is still unfolding.

Stock Market Sector Rotation Trading Tactic

Despite the volatile market condition, there are still many strong up trending stocks in the outperforming sectors that are suitable for swing trading. The choppiness as reflected in the S&P 500 is the result of a sector rotation, which might not reveal the full picture of the market environment.

As shown in my stock screener below, there are 353 bullish setup stocks versus 518 bearish setups stocks. Many of the bullish stocks belong to commodities, such as oil and gas, milling, agricultural chemical, miners of precious metals, etc…

These are the outperforming groups where the smart money focus on. It is essential to trade with the trend and where the money flows to in order to be profitable in this volatile market.

Apart from the commodity sector, there are in total 6 leading sectors to focus on plus 3 lagging sectors to avoid, as illustrated in my video below.

Pick the sectors and groups that are suitable for your risk profile and diversify your portfolio based on the leading sectors will help you beating the market in the long run. Visit TradePrecise.com to get more stock market insights in email for free.

Sector Rotation Strategy Reveals The Outperforming Sectors For Trend Trading

The stock market has experienced tremendous volatility since late November 2021 and the 4 major indices such as S&P 500 (ES), Dow Jones (YM), Nasdaq 100 (NQ) and Russell 2000 (RTY) has corrected more than 10% from the peak to the trough in February 2022. Since then, the rally in March 2022 is considered as a Wyckoff change of character, which changed the short-term market environment from downtrend to uptrend.

Due to the high volatility (both to the downside and to the upside) as shown up in the market, picking the right sectors followed by buying the outperforming stocks are the keys to be profitable in stock trading.

Smart money has rotated out from the previous leaderships and progressively into different sectors as a result of the on-going sector rotation. Let’s start with a top-down approach to determine the outperforming sectors below.

Top 4 Outperforming Sectors – XLE, XLP, XLU, XLV

There are two elements to focus on in order to determine the outperforming sectors when analyzing the sector charts using the ETFs, which are the relative strength and the price structure. Refer to the chart of XLE (Energy), XLP (Consumer Staples), XLU (Utilities) and XLV (Health Care) below:

XLE has been in a clear uptrend with higher high and higher low since January 2022 while the relative strength (below the chart and annotated in orange) trending up. S&P 500 is used as a benchmark in the relative strength indicator. Rising in the relative strength means XLE outperforms S&P 500 since January 2022.

XLP, XLU and XLV shows outperformance in the relative strength index since December 2021 while their price just hit a higher high recently.

These 4 sectors – energy, consumer staples, utilities and health care show strong price action with their prices break the previous high while outperforming S&P 500.

Sectors Comparison – XLB, XLRE, XLI, XLF

Next let’s compare XLB (Materials), XLRE (Real Estate), XLI (Industrial) and XLF (Financial) below.

The top 2 charts, XLB and XLRE showed outperformance in the relative strength pane since November and December 2021 yet their prices still did not break above the previous swing high. These 2 sectors outperform S&P 500 yet they are not the strongest because of the price structure, which might take more time to unfold.

XLI and XLF show similar relative strength comparing to S&P 500 while their price structures form lower low and lower high, which is a sign of weakness.

Lagging Sectors – XLK, XLY, XLC

The last 3 sectors, XLK (Technology), XLY (Consumer Discretionary), XLC (Communication Services) are the lagging sectors, as shown below.

Both their price structures and the relative strength trend down with lower low and lower high. These 3 sectors are clearly not in favored by the smart money since December 2021.

It is essential to focus on the outperforming sectors like XLE (Energy), XLP (Consumer Staples), XLU (Utilities), XLV (Health Care), XLB (Materials) and XLRE (Real Estate) and to dive into the outperforming industry groups within the sectors before picking the stocks showing Wyckoff accumulation pattern for trend trading.

Stock Market Outlook Video Using Wyckoff Method

Let’s find out where the prices of S&P 500, Nasdaq 100, Dow Jones and Russell 2000 likely to go to. Watch the video below to determine how to use Wyckoff method to derive a directional bias with the volume and the price action alone. Visit TradePrecise.com to get more stock market insights in email for free.

Here’s Where Bitcoin Could Go While The Wyckoff Accumulation Pattern Is Unfolding

The downtrend of Bitcoin (BTC) started in November 2021 as an up thrust (e.g. false breakout) followed by a marking down until a Wyckoff change of character (this concept is applicable in Gold and crude oil as explained in the video) showed up in late January 2022. The change of character was the biggest up wave, broke out from the down channel, which stopped the downtrend into a trading range.

Bitcoin’s Wyckoff Accumulation Pattern Explained

Within the trading range between 33000-45500, the pullbacks of Bitcoin in February and March 2022 were accompanied by increasing of supply. Despite the excessive supply, Bitcoin formed a higher low suggested supply absorption according to Wyckoff’s law – efforts vs results, where increasing of supply (effort) fails to generate a meaningful downward result. Refer to the chart below:

It was worth to note that the test of the reaction in March formed a slightly higher low with decreasing of supply, which was considered as a successful test. A rally could be anticipated after the test with decreasing of supply.

The rally of Bitcoin started on 14 March 2022 broke above the resistance level 45530 followed by a backup action (BU) testing the axis line (unfolding now) where the previous resistance-turned-support. The rally could be classified as a sign of strength rally (SOS) when the backup action (BU) can commit above 44000, which was where the breakout initiated.

Since the backup action is still on-going, it is essential to considered the bullish case when the Wyckoff accumulation pattern is completed for Bitcoin and also the failure case.

Should Bitcoin break above 48000, it is likely to test the upper target near 54000, which is the level where the breakdown happened on 4 December 2021.

Although the tell-tale signs above point to a bullish bias for Bitcoin, it is essential to consider how the accumulation pattern will be violated. In order to maintain the bullish accumulation pattern, Bitcoin is to commit above 44000. Should Bitcoin break below this support level at 44000 with increasing supply followed by inability to rally back above, Bitcoin could test the immediate support level at 42500 followed by 38000.

Should a failure happen, the characteristics of the price action such as the price spread, velocity together with the volume are to be analysed using Wyckoff trading strategy as discussed in the video in order to derive the direction bias of Bitcoin.

4 Outperforming Bitcoin And Crypto Stocks For Swing Trading

Instead of trading or investing in Bitcoin, there are many Bitcoin and Crypto related stocks suitable for swing trading while taking advantage of the strength in Bitcoin. Refer to the chart of Silvergate Capital (SI), MicroStrategy (MSTR), Riot BlockChain (RIOT), Marathon Digital Holdings (MARA) below:

The trend for these 4 stocks is very similar to Bitcoin as they track the performance of Bitcoin closely. SI outperforms the rest as the current backup action is still a lot higher above the axis line (resistance-turned-support) followed by MSTR and RIOT, which are currently testing the axis line. MARA failed to break above the resistance, which is considered a laggard among the 4 stocks.

When the Wyckoff accumulation pattern for Bitcoin is completed, these 4 Bitcoin-related stocks are expected to start the markup phase to test higher price targets. Visit TradePrecise.com to get more stock market insights in email for free.

Short-Term Wyckoff Accumulation Pattern Is Near Completion For Gold

Since a Wyckoff accumulation pattern in the smaller timeframe is about to complete, gold could be ready for a short-term uptrend to test the previous high near 2080 despite a Wyckoff change of character (as discussed in my video) showing up in Gold futures (GC) two weeks ago, which stopped the uptrend since early of February 2022.

Explain Wyckoff Accumulation in Gold

As shown in the 4-hour chart of gold, a selling climax (SC) was achieved followed by an automatic rally (AR), which defined the upper and lower boundary for gold.

The recent sign of strength (SOS) rally broke above the resistance at 1950 is the best rally within the short duration of the trading range since the selling climax while the backup action is the shallowest reaction. These clues suggest gold is at a sweet spot to enter the mark-up phase upon confirmation.

A commitment above the immediate resistance at 1970 in gold could kick start the rally to test the upper resistance at 2020 followed by 2080.

Despite the bullish characteristics as explained above, a failure case of this short-term Wyckoff accumulation structure is to be considered as it might take more time to develop the structure before entering the markup phase.

Should gold break below 1940, the markup scenario is violated and gold is likely to test the low near 1900 while spending more time within the trading range.

Gold Price Forecast with Point & Figure Chart

The price target for gold can be estimated and projected using Point & Figure (P&F) chart as shown below:

The minimum price target for gold is estimated to be 2080 using the full segment calculation (as highlighted in blue), which coincides with the resistance formed by the previous swing high level.

Detail analysis using Wyckoff method as shown in the video is to be conducted to anticipate the next move in gold as we will need to analyze how the price interacts with the key resistance level, its characteristics and to interpret the supply and demand as reflected in the volume.

Focus On The Outperforming Sector – Commodities

The strong rally in the market especially the S&P 500 (SPX) and Nasdaq 100 (NDX) in the past two weeks draws the attention of both traders and investors. Bullish sentiment is definitely back, which is also reflected in my stock screener below:

While going through the bullish trade entry setup for the stocks, many commodities related stocks range from oil and gas, agricultural milling, fertilizers, precious metals, etc… show outperformance. These are the trade entry setups I will be focusing on in order to beat the market.

Yet majority of the news headlines focus on the deeply oversold technology stocks. These oversold technology stocks might have gained a lot in the past two weeks. Yet, it still does not change the bearish structures for most of the them. Some of them at best could be at their base building structures while bottoming out. A lot of them are likely to resume their downtrend once the market reverses to test the low formed in February 2022.

Focus on the stocks that show outperformance will likely lead to extraordinary return in the long run. Visit TradePrecise.com to get more market insights in email for free.

The Bullish Patterns You Need To Know That Drive The Short Covering Rally in S&P 500

Since the Wyckoff spring pattern on 24 February 2022 that marked the temporary bottom in S&P 500, excessive supply has capped the upside of the rally. On 16 March 2022 there were a number of subtle bullish tell-tale signs showed up, which confirmed the short covering rally in S&P 500. This is similar to a Wyckoff change of character in the short-term as illustrated in the video for gold and crude oil, but to the upside in S&P 500.

Bullish Reversal Patterns In S&P 500

The down swings (highlighted in blue) since 10 February 2022 were getting shorter in terms of the magnitude, which was a sign of exhaustion of selling. The high consistent of the supply as shown in the volume pane (annotated in orange) accompanied the down swings suggested supply absorption as downward results were not manifested. This was the first clue that the bargain hunters showed up, which created the bullish condition for a rally. Refer to the chart below:

On 16 Mar 2022 (as annotated in green arrow), S&P 500 broke out from the down trend line, which acted as a strong resistance this year. Although there was a breakout on 9 February 2022, it was negated in the next bar as a failure. This was the second bullish reversal pattern in S&P 500.

This bar also overcame the last down commitment bar on 11 March 2022 and closed above its high as the third bullish pattern. This was significant because it signified a potential bullish reversal from there on. Majority of the short-sellers exited their positions because of the violation of this significant level hence propelling the rally further. This was reflected on the low volume rally on 17-18 March 2022, which was an ease-of-movement in the price action.

These 3 bullish patterns painted a bullish picture ahead for S&P 500. On 18 March 20, 2022, S&P 500 broke above the axis line where the previous support-turned-resistance, suggested a bullish continuation to test the resistance zone between 4480-4600.

This zone is a strong resistance area where the previous breakdown and rejection happened. Short-sellers are naturally attracted to this zone to initiate short positions.

S&P 500 Price Prediction with Wyckoff Method

Based on the Wyckoff phase analysis, S&P 500 is likely in phase B after a secondary test as a spring type action followed by two tests with supply absorption characteristics. It is on its way up to test the resistance zone as define by the automatic rally (AR). Refer to the chart below:

As the long-term trend is still down, the short-term bullishness is expected to be met by the dominating supply after a test of the resistance zone (as annotated in the green path). Detail analysis will be conducted in the Wyckoff trading method live session to interpret the supply and demand in conjunction with the price action in order to derive the directional bias as shown in the video. It is crucial to pay attention to how the price interacts with the key resistance zone between 4480-4600.

Bullish Trade Setup For Swing Trading

The strong rally in the past week was great for bullish trade setup for swing trading. The bullish market sentiment is also reflected in my stock screener where the bullish setup outnumbers the bearish setup (274 vs 14). Refer to the screenshot below:

The focus of the stock selection is still on those outperforming stocks instead of the oversold stocks (like a lot of the technology / growth stocks). Majority of the soft and hard commodity stocks experience a healthy pullback / consolidation. Bullish continuation is expected to carry on in this group. Visit TradePrecise.com to get more market insights in email for free.

For a look at all of today’s economic events, check out our economic calendar.

What A Wyckoff Change of Character May Mean For Gold And Crude Oil

Both gold and crude oil have been on a parabolic rise in the last 2 weeks due to the war between Russia and Ukraine. On 9 March 2022, a Wyckoff change of character bar showed up in both gold and crude oil also represented the largest bearish bar since the uptrend, acted as a stopping action for the uptrend. While the automatic reaction (AR) is unfolding, a short-term trading range could be anticipated for gold and crude oil.

Gold Price Forecast with Wyckoff Method

Since mid of January 2022, gold outperforms S&P 500 as shown in the relative strength chart (circled in green in the lower pane). After breaking out from the apex formation in mid of February 2022, gold entered into a parabolic rise and almost tested the all-time high level at 2089 on 8 March 2022 with a buying climax (BC) and spike of volume followed by an automatic reaction (AR), which is still unfolding. Refer to the chart below:

The automatic reaction is part of the change of character, which stopped the parabolic run in the short-term. This is the largest down-wave since the beginning of the uptrend in January 2022. A trading range could be anticipated (annotated in orange) based on the high and the low formed by the buying climax and the automatic reaction.

According to the Wyckoff phase analysis in a larger perspective since August 2020, the uptrend from January 2022 could be phase D sign of strength rally pending a backup action (the anticipated trading range as annotated in orange) before completing the accumulation structure. This is a bullish structure with plenty of upside ahead.

Yet, a trading range between 1960-2080 is expected in the short-term. Refer to the Wyckoff method video to find out the details of interpreting the price action and the volume to predict the market movement, which can be adopted in any instruments and timeframe.

Crude Oil Price Forecast with Wyckoff Method

Similar to gold, crude oil has been on a parabolic move up since March 2022 and experienced a change of character on 9 March 2022, which is likely to signal a temporary pause of the uptrend. A trading range between 100-130 could be expected (annotated in orange) in the short-term. Refer to the chart below:

The buying climax (BC) formed on 7 March 2022 together with the parabolic run-up was the first alert for a potential pullback as profit-taking activity kicked in because of the unsustainable nature of the parabolic move.

After the consolidation, crude oil is likely to resume its rally to test the all-time high level near 150. Having said that, it is crucial to watch out for the characteristics of the price action and the volume to avoid any potential bull trap, which happened in S&P 500 last week.

Bullish And Bearish Trade Setup For Trend Trading

Despite the market sentiment being bearish, there are still plenty of trading opportunities for trend trading in both directions, as shown in the snapshot of my stock screener below.

The majority of the bullish stocks experience shallow pullback, consolidation or even buck the trend as the market is going down. These stocks are expected to outperform when the market flips to an upswing. Should you plan to short the bearish stocks, watch out for the position size based on the risk taken as the magnitude of the rally in a bear market, especially for deeply oversold stocks can be sharp and fast. Visit TradePrecise.com to get more market insights in email for free.

Bullish Reversal Pattern or A Bull Trap in S&P 500?

On 24 February 2022 a bullish reversal pattern (Wyckoff spring) showed up in the 4 US major indices. Detailed market outlook of S&P 500 (SPX) using the price action, volume together with the elaboration of the Wyckoff spring pattern have been discussed in the video. However, there was no follow through to the upside last week in S&P 500 subsequently.

Is this bullish reversal pattern or a bull trap in S&P 500? It is essential to analyze the price action together with the supply and demand as reflected in the volume in order to derive the directional bias of S&P 500.

Bullish Wyckoff Spring Reversal Pattern in S&P 500

For a true Wyckoff spring as a reversal pattern, bullish attempts to test the previous swing high of 4450-4500 (as annotated in blue) or even 4550-4600 (as annotated in green) could be expected. As S&P 500 has been in downtrend after a sign of weakness showed up in January 2022, a failure to overcome the previous swing high is likely (hence the projected path as annotated), as shown below.

Although S&P 500 did not have any progress to the upside last week, it is still in a trading range between 4270-4400 with decreasing volume. The slight increase of volume on last Friday came with a lower tail, suggested presence of demand. Slightly higher low formed in S&P 500 in the past week was a constructive sign for a bullish scenario.

A breakout above 4400 is needed for the bullish Wyckoff spring reversal to remain valid. So far, the market has been indecisive with a bullish bias as mentioned above.

Failure of The Wyckoff Spring Reversal Pattern

Should S&P 500 fail to rally up above 4400 followed by a break below the support level at 4270, the bullish case will be violated. Refer to the chart below for an illustration of the failure case.

A commitment below 4270 with an inability to rally up could push S&P 500 to test the previous low near 4100 or even lower. Increasing of volume similar to the down swing from 10-24 February 2022 could be expected.

Bull Run in The Commodity Stocks

Despite the market volatility is driven by the war between Russia and Ukraine causing the wild move to both directions, there are certainly trading opportunities manifested, such as in the commodity market like Gold, crude oil, Copper, Aluminum, etc…Yet, it is essential to adopt proper position sizing technique that suit your risk profile to survive in this volatile market.

There are plenty of commodity stocks show up in my stock screener even during the bearish market sentiment, as shown below:

The on-going war between Russia and Ukraine serves as tailwind to the commodity stocks. The plan is to buy the commodity stocks in an accumulation structure and outperform the markets (which majority of them are) in order to gain an edge in the market. Visit TradePrecise.com to get more market insights in email for free.

Wyckoff Spring Pattern Suggests A Temporary Market Bottom in S&P 500

On 24 February 2022 while Russia forces launched full-scale invasion of Ukraine, the 4 US major indices reacted negatively and broke below the previous selling climax support level created on 24 January 2022 during the Globex session. At the beginning of the US session, the indices started to rally strongly and closed at the high despite the bearish sentiment and the announcement of list of sanctions against Russia.

As shown in the chart above, a Wyckoff spring pattern showed up (annotated in the orange arrow) on 24 February 2022 when there was a temporary (intraday) break below the support followed by a commitment above. There was no follow through to the downside while the war between Russia and Ukraine is on-going. It is worth to pay attention when the market rises on bad news.

Reversal Pattern in S&P 500 Via Wyckoff Spring

The demand zone from 4200-4400 was formed since the selling climax low on 24 January 2022. This can be confirmed by the stopping action as reflected in S&P 500 (SPX) in the past 4 trading sessions. The Wyckoff spring action on 24 February 2022 is the biggest hint for a reversal sign, which was further confirmed by next day’s bullish momentum bar.

Now, S&P 500 is reaching the axis line (around 4380-4400) where the support-turned-resistance is expected to attract supply. A pullback could be expected as a test of the Wyckoff spring before further continuation to the next upside target of 4450-4600. The characteristics of the pullback and the volume are crucial to determine the quality of the next rally up. Refer to the Wyckoff method video to find out the details of interpreting the price action and the volume to predict the market movement.

Failure of The Reversal Pattern in S&P 500

Some pattern traders might argue that this is a potential double bottom, which could mark the market bottom (e.g. the low). However, judging from the health of the overall stock market, it is likely to have a final flush down like 2014, 2015 and 2018 to set the market bottom as demonstrated in the market breadth video. Based on the Wyckoff phase analysis, S&P 500 is likely at the beginning of phase B where volatility is still excessive to both sides, as shown below:

The sign of weakness started in November 2021 till the selling climax formed on 24 January 2022 paints a bearish background in the S&P 500. Therefore, the Wyckoff spring might not be extremely bullish to kick start a new uptrend. The characteristics from the price and volume while attempting to rally will provide us lots of clues to anticipate the future price development.

The key resistance levels for S&P 500 are 4400, 4480 and 4600. It is crucial to pay attention to how the price interacts with the key levels and the supply level as reflected in the volume. Should the support near 4200 fail to hold, a quick flush down could be expected.

Despite the bearish sentiment in the stock market, the Wyckoff spring as shown in the indices signals an upswing at least for now. There are also more buy signals (295) than sell signals (79) as shown up in my stock screener. Refer to the screenshot below:

Market volatility is expected to be greatly influenced by the war between Russia and Ukraine and the on-going sanctions against Russia. Risk management is extremely important to survive in this volatile market. Visit TradePrecise.com to get more market insights in email for free.

Here’s How The Price Action of Crude Oil Behaves Before A Correction

Since Christmas last year, crude oil (CL) price has been trending up nicely within an up channel from 73 to almost 96 at the peak on 14 February 2022. The recent bullish move in crude oil is also supported by the geopolitical tensions between Russia and Ukraine. However, the subtle tell-tale signs revealed in the characteristics of the price action may signal a looming correction in crude oil.

Wyckoff Analysis Method for Crude Oil Futures

The crux of using Wyckoff method is to detect changes along the way in order to determine if there is potential violation in the current trend. Take a look at the chart of the crude oil futures (CL) below:

In July and November 2021, crude oil price hit the overbought trendline (as annotated in blue) and started a correction ranged from 20%-26% (shown in red). In early February 2022, crude oil price has again hit the overbought line (served as a resistance) after a prolonged uptrend since December 2021.

Apart from hitting the overbought line, shortening of the thrust to the upside can be observed since January 2022. The progress to the upside in crude oil is getting shorter as annotated in those 3 blue arrows, suggests the up momentum is fading.

On 14 February 2022, there was a false breakout or up thrust as labelled by Wyckoff practitioners, followed by a break of the immediate up trendline since early this year.

The conditions of overbought in conjunction with exhaustion of the up momentum plus the false breakout and a break of the up trendline paint a bearish picture ahead for the crude oil price. A break below the recent swing low should confirm the bearish move. Refer to the Wyckoff method video to find out how to interpret the trading context with the volume to better anticipate market movement.

Crude Oil Price Prediction

Although the bearish conditions are manifested in crude oil, a break below 88.5 with an inability to rally up will only confirm the start of the down swing. The magnitude of the down move is largely dependent on the potential emerging of the supply.

Based on the chart above, the support levels for crude oil futures are 85, 80 and 75. It is essential to pay close attention to how the price interacts at the specific support level should a down move materialize.

Using the Point and Figure (P&F) chart for a price target projection, the downside price target for crude oil is 80, which coincides with the support level. Further price targets can be calculated once the first target has been achieved.

Using the past two corrections in crude oil as analogues, a 20% correction off the peak of 96 would translate to 76.8, which is also close to the support at 75. Despite many oils related stocks outperform the market for weeks or months, proper stock risk management is required in order to survive in the market.

Bear in mind that a correction in crude oil usually does not come as a straight line. Potential re-distribution (in smaller timeframe) is likely to be seen during the correction. When a down swing starts in crude oil, oil related stocks are likely to experience selling pressure and profit taking. Visit TradePrecise.com to get more market insights in email for free.

For a look at all of today’s economic events, check out our economic calendar.

Weakness In High Yield Bond Signals More Volatility Ahead for The Stock Market

High yield bond (also called junk bond) is often used as a risk-on or risk-off sentiment indicator. However, as high yield bond is very sensitive to the market liquidity, it is a reliable indicator to give early warning of the potential liquidity problem in the stock market.

Refer to the chart below to find out how the high yield bond (HYG) behaves when there are tapering of the bond buying program and quantitative tightening by the Federal Reserve (Fed).

Divergence between High Yield Bond and S&P 500

As shown in the chart below, divergence (highlighted in orange arrow) between high yield bond (HYG) and S&P 500 (SPX) showed up in 2014-2015, 2017-2018 and 2021 where S&P 500 formed higher highs while HYG formed flattened highs.

Pullbacks (highlighted in pink) with relatively large magnitude were seen when HYG struggled to go up to catch up with S&P 500. The divergence together with the meaningful pullbacks in HYG signaled the red flags in the S&P 500. Subsequently, S&P 500 experienced a 12% correction off the peak in 2015, 2018, and 2022.

In 2014 the Fed’s taper of the monthly bond-buying program responding to the global financial crisis in 2008, ran from January until October 2014, lasted 10 months. In 2018, the Fed conducted quantitative tightening in order to shrink its balance sheet.

Both the tightening of the monetary policy by the Fed caused the market correction of more than 10% with increasing of volatility as reflected in the trading range formed in the S&P 500 in 2015-2016 and 2018-2019.

Now, apart from tapering the bond-buying program scheduled to end in March 2022, the Fed is also considering quantitative tightening to shrink the balance sheet. On top of that. a rate hike is likely to happen in March 2022.

The fast pace of tapering, tightening, and raising rates are expected to stir up more volatility in the stock market, which is currently unfolding where S&P 500 just had a steep correction in January 2022.

Prior to the sharp correction in S&P 500, high yield bond (HYG) already gave early warning by producing multiple meaningful pullbacks on top of the divergence with the S&P 500.

In the past 3 weeks, despite the market rebounded off the oversold condition, the sell-off in high yield bond (HYG) continued, which could point to more weakness ahead in S&P 500. In order to better predict the short-term trend of S&P 500, Wyckoff method is adopted for detail analysis below.

S&P 500 Price Prediction with Wyckoff Method

Based on the Wyckoff phase analysis, S&P 500 had a selling climax (SC) in 24 January followed by an automatic rally (AR), which is a technical rally after an oversold condition. 4550-4600 (as highlighted in red) is the resistance area where the previous breakdown happened, which is an important level to overcome for a bullish up swing. Refer to the chart below:

Last week there was an attempt to breakout from the resistance zone at 4550-4600 yet failed with two bearish bars with increasing of volume, suggested presence of supply.

Increasing of volatility on both directions is one of the key characteristics of a bear rally. The bear rally as reflected in the automatic rally (AR) inflicted pain for the short-sellers to cover their short positions while lured in the traders and investors who were hoping for a V-shape rebound. Refer to the market outlook video to find out how to interpret the supply and demand in the volume together with the price action to better anticipate the movement in S&P 500.

Last Friday the bearish bar broke below the intermediate support level at 4450 suggested a test of the low formed by the selling climax as a secondary test (ST). So far, S&P 500 is still in a trading range between 4250-4600. Meanwhile, oil related stocks still outperform where there are many valid low risk trade entry setups with decent reward to risk ratio thanks to the strong crude oil price. Upside follow through is likely to continue for the oil stocks. Visit TradePrecise.com to get more market insights in email for free.

Here’s What The January Barometer Says About S&P 500’s Performance in 2022

In January 2022, S&P 500 (SPX) fell more than 5%, which was the worst January since 2009. According to Stock Trader’s Almanac 2022, a down January is not a bullish signal for the stock market. Since 1950, every down January was followed by increasing of volatility with an average of -2.1% return for the year. The performance of S&P 500 from the close of January to the low of the year is -13% on average since 1950 (except for 2021).

January Barometer vs. SPX Price Structure

In order to better interpret the effect of the January Barometer on S&P 500 (SPX), take a look at the monthly chart of SPX below.

Since the January Barometer is a measure based on the statistics, it makes more sense to interpret together with the price structure to better predict the price performance of S&P 500 in 2022.

Since 2000, there are 13 down January (as highlighted in orange). The down January in 2022 potentially represents a change of character, which essentially stops the uptrend since the COVID-19 low in March 2020. This could suggest a consolidation via a trading range with the directional bias to be determined at the later stage using price action analysis or a reversal.

Out of these 13 down January since 2000, the context of the current market environment is very similar to 2010’s. In 2010 and 2022, the background of the SPX was an uptrend and the down January acted as a change of character bar stopping the uptrend. The trading range in 2010 came with increasing of volatility on both sides together with expansion of volume. SPX only left the trading range in September 2010 and emerged into another up trend.

S&P 500 Price Prediction with Wyckoff Method

Let’s analyze the S&P 500 E-mini Futures to predict how the price will unfold base on the volume and the characteristics of the price movement.

At the beginning of January 2022, S&P 500 had a false breakout followed by a sharp selloff formed a selling climax (SC) on 24 January 2022. The next 4 days showed no follow through to the downside despite exceptionally high volume suggested presence of demand. These were the tell-tale signs to anticipate the automatic rally (AR) started last week, as illustrated in my live session video where you will find out how to interpret the volume as supply and demand in conjunction with the price action before the rally starts.

The rally stalled at the resistance area 4480-4600 with shortening of the thrust to the upside suggested exhaustion of the demand. This was confirmed by a pullback on 3 February 2022. The hammer bar on 4 February 2022 with increasing of volume suggested a test of the swing high near 4600.

Based on the short-term price action, I anticipate an attempt to test 4600. On a longer-term perspective based on Wyckoff phase analysis, a down wave is likely to test the selling climax’s low near 4200. A trading range between 4200-4600 is likely the case for S&P 500 in 2022.

Despite the directional bias is to the downside based on the market breadth and the price action, volatility is expected to remain high on both sides hence it is not uncommon to experience whipsaw in both directions.

Majority of the laggards hit the 52-weeks low are way oversold and overextended. It will offer better reward to risk ratio to wait for a weak rally to test of the resistance before initiating new short positions. Oil related stocks still outperform while riding the strength in crude oil, there is likely upside continuation ahead after a consolidation or a pullback. Visit TradePrecise.com to get more market insights in email for free.

What History Says About Russell 2000’s Performance After Market Breadth Hits This Level

Among the 4 US major indices, Russell 2000 (RTY) is the worst-performing where it corrected 20% from the peak in November 2021 and broke below the major support level near 2100. From Wyckoff trading method perspective, Russell 2000 is about to complete the distribution phase and enter the mark down phase.

Last week I mentioned that the broad market sell-off is very extended and oversold as shown in my market breadth analysis video on S&P 500. Similar situation is unfolding in Russell 2000. Yet, there is an anomaly from the price structure context when analyzing the market breadth.

Using Market Breadth of Russell 2000 To Anticipate A Temporary Bottom

As shown in the comparison chart above between Russell 2000 (RUT) and its market breadth (R2TH) using percentage of stocks above 200-Day average, there is an almost perfect correlation between Russell 2000 and its market breadth.

Since 2014 when the market breadth dipped below the 30% support level, Russell 2000 rebounded off the support (as highlighted in green 6 times) mainly because it reached an oversold level in the short term and a technical rally normalized the situation. Should the rebound fail to overcome the 50% level, the market breadth will dip a lot lower below the 30% level into deeply oversold and capitulation level from 5%-15%, as reflected in 2016, 2018 and 2020.

When only 5%-15% of the stocks are above 200-Day average, the market is in a panic and extremely oversold condition where majority of the sellers are already in position and almost no more sellers left to tank the market further. This corresponds to the market bottom and a sharp rally follows to kick start the bull market.

Last week the market breadth dipped below the 30% level where Russell 2000 was oversold and extended. However, there is a major difference this time comparing to the past when the market breadth dips below the oversold level at 30%.

Russell 2000 Price Structure Context

Previously, when the market breadth dips below the 30% level, Russell 2000 is at or very close to the support from the horizontal trading range. Now, Russell 2000 has committed way below the support of the horizontal trading range near 2100.

In 2014, the market breadth successfully committed above the 50% level and saved Russell 2000 from the tank for at least 1 year. This violated the bearish scenario.

In 2020 during the COVID-19 sell-off, the rebound of the support in Russell 2000 was very weak when the market breath hit the 30% level because of the urgency of distribution from institutions due to the uncertainty of COVID-19. This is considered as a rare event.

Therefore, only the analogues from 2015 and 2018 are used for comparison with the current situation. The rebound in Russell 2000 ranged from 5%-8% after the market breadth dipped below the 30% level in 2015 and 2018.

Although Russell 2000 is way below the support at 2100 unlike the previous analogues in 2015 and 2018, it is still in short term oversold condition pending a technical rebound for normalization. The magnitude of the rebound might not be as strong as in 2015’s and 2018’s. Should a rebound of 8% happen, it will only take Russell 2000 back to test the axis line (where the support-turned-resistance) near 2100, which is still a classical bearish structure for continuation to the downside, as shown below.

Last week Russell 2000 showed climactic volume with mediocre down movement suggested presence of demand in the stopping volume. The bull has secured a chance to prove its worth in the coming week. Should a strong rally unfold and Russell 2000 can commit above 2100, that might violate the bearish scenario. Else, there will be more downside ahead in the near future. Based on the Point and Figure (P&F) chart price target projection, Russell 2000 could test the lower price targets at 1660-1840. Visit TradePrecise.com to get more market insights in email for free.

Market Breadth Shows Stock Sell-Off Not Over And Could Have More Weakness Ahead

Despite the S&P 500 (SPX) has come down nearly 10% off the peak in this month, with stock market breadth continues the downtrend since May 2021, there is no sign of market bottoming. Having said that, SPX is definitely oversold with climatic down move and wide price spread, which is likely to experience a selling climax soon before an automatic rally kicks in.

Detailed price action analysis with the Wyckoff method on S&P 500 Futures will be shown later. First, take a look at the relationship between SPX and the market breadth below to derive some useful market insights.

Using Stock Market Breadth to Spot Market Bottom

The market breadth as shown in the bottom pane of the chart is the percent of stocks above 200-Day average. There is a clear divergence between the market breadth and the SPX since January 2021 where the SPX forms a higher high while the market breadth forms a lower low.

This divergence means less stocks are participating the uptrend, which is not a healthy sign for a bull market. The divergence serves as a red flag and not a signal or confirmation for a reversal of the uptrend because the price action is still the final confirmation.

The market breadth chart is divided by 3 orange lines at 70%, 50% and 30%. The key is to pay attention to the 50% level. When the market breadth comes down and fails to bounce at the 50% level, there has been a strong pullback or correction in SPX as seen in 2014, 2015, 2018 and 2020. The level at 50% acts as a support. When there are less than 50% of the stocks above 200-Day average for some time, the uptrend of SPX is unlikely to hold hence a pullback or correction happens.

The first time the market breadth dipped below 50% support level in September 2021, it managed to climbed above in October 2021. The second time it dipped below the support level in November 2021, there were 3 attempts to rally above but none of them able to even test the 50% level. The inability to reclaim above the support level spells trouble ahead for SPX.

Based on the past data, once the market breadth failed to reclaim the support level at 50%, it dipped below the 30% level, which is considered as an oversold level. A dip below the 30% level followed by a reclaim above (annotate in green) marks the market bottom except in 2018.

Even in 2018, it also marked a temporary bottom with an upswing followed in SPX despite there was a final capitulation in December 2018.

Now, the market breadth is at 31.3, which is yet to dip below the 30% level, could suggest more weakness ahead in SPX until a selling climax occurs followed by a technical rally. During this transition period, likely there will be sector rotation in the stock market where the money managers take the opportunity to re-balance and re-position their portfolios and rotate the funds to the outperforming stocks.

S&P 500 Price Prediction with Wyckoff Method

Based on the characteristics of the S&P 500 E-mini Futures (ES), a sign of weakness (SOW) broke below the up-sloping trading range with increasing supply since 13 January 2022. The down wave comes with increasing price spread and climatic move, which are part of the characteristics before a selling climax and a technical rally show up. Refer to the chart below for the potential bearish scenario.

An estimation of the price targets of S&P 500 based on the Point and Figure (P&F) chart is shown below:

A first segment (annotated in orange) is used for the estimation and the projected price target is 4020-4240. This means there is “enough fuel in the tank” for the distribution based on the Wyckoff’s law – Cause and Effect. It does not mean the price must come down to the price target.

Ultimately, it is essential to refer back to the price action of S&P 500 and its characteristics to confirm the price movement. Based on the market breadth data, price volume analysis and the Point and Figure price target prediction for S&P 500, it seems like the sell-off is not over yet. The odds are still in favour of the bear. Visit TradePrecise.com to get more market insights in email for free.

Relative Strength Chart Reveals Nasdaq Is Losing Its 20 Years of Leadership

After the burst of the dot-com bubble in early 2000 as shown in the monthly ratio chart (IXIC/SPX) between Nasdaq Composite (IXIC) and S&P 500 (SPX), Nasdaq was underperformed S&P 500 until the swing low formed in 2002. Refer to the relative strength chart (IXIC/SPX) below:

Relative Strength Between Nasdaq & S&P 500

Despite IXIC/SPX is a ratio chart, Wyckoff price structure together with Wyckoff events can be observed throughout. After the selling climax (SC) formed in April 2001 as reflected in the huge bearish price spread with acceleration to the downside, an automatic rally stopped the downtrend and into a trading range.

After a secondary test in September 2002, a sign of strength rally (SOS), which is classified as the best rally within the trading range broke above the resistance followed by a shallow backup action (BU) trading range until 2009. This is a classical Wyckoff accumulation structure pending the start of the markup phase, which is the beginning of the uptrend.

Nasdaq composite started to lead the S&P 500 since 2002 as it formed a higher high and a higher low subsequently.

The uptrend manifested after a breakout from the backup trading range in 2009 and accelerated in 2014-2018. After the COVID-19’s bottom in March 2020, there was a potential final speculative run up forming a buying climax (BC) in February 2021, barely touch the swing high formed in 2000, which acted as a resistance.

Next, a change of character, which is the largest down wave (as highlighted in orange) since the bottom in 2002 kicked in followed by an inability to rally up (as highlighted in blue) between May to November 2021, suggested more weakness ahead in Nasdaq Composite against S&P 500.

Should the relative strength chart (IXIC/SPX) break below the support (as annotated in horizontal brown line), it is likely to head down to test the lower support (as annotated in horizontal green line).

This could be a market rotation scenario as shown in my video last week or it could mean Nasdaq will drop more than S&P 500 should a market correction begin. Either way, Nasdaq Composite is expected to underperform S&P 500 and losing its 20-years of leadership since 2002 based on the relative chart (IXIC/SPX).

Price Target for IXIC/SPX with Point & Figure Chart

As relative strength chart is still unfolding and the support is not broken yet, it is still possible for the price to bounce up to higher target. Point and Figure (P&F) chart is a tool in price action trading with Wyckoff Method as traders can project the price target based on the causes built according to the Wyckoff’s Law – Cause and Effect. Let’s examine if there is enough fuel in the tank for the price to go higher in this relative strength chart.

As shown in the point and figure chart above, the original segment (in blue) was used in the calculation. The price targets based on the blue segment, which is the accumulation structure, are 3.5-3.75. The next segment (in orange) based on the re-accumulation structure, works out to be 3.45-3.65, which acted as a confirming count to the original segment.

The price targets from these two segments coincide with the resistance at 3.6 as formed by the previous high during the internet dot-com bubble in 2000. The fuel in the tank for the upside price target has been consumed as confirmed by the pullback in February 2021 once it hit the price targets.

It is crucial to pay attention to the next price action to confirm if the support will be broken with more weakness ahead or another trading range will be formed from here on to build up more causes for the next up move.

Gold Price Forecast 2022: A Contrarian View To JPMorgan’s Bearish Stance

According to a 2022 market outlook report published by J.P. Morgan Global Research recently, the gold price will be under pressure given the tightening monetary policy by Fed this year. “An unwinding in ultra-accommodative central bank policy will be most outright bearish for gold and silver over the course of 2022,” the analysts said.

Since the macro environment does not favor for gold this year, I have analyzed Gold using the Wyckoff method to find out the tell-tale signs derived from price and volume only, which reveals a contrarian view to J.P. Morgan’s.

Price Volume Analysis in Gold

As shown in the daily chart below, gold (GC) reached a peak near 2100 in Aug 2020 with a parabolic run up followed by a distribution as boxed up in red. The selling bars with wide price spread are highlighted in yellow, correspond to spike of volume (as highlighted in blue). Every time gold price hit 1950, selling took place with increasing of volume. Supply zone between 1850-1950 is hence identified. Subsequent rally in May and November 2021 confirmed the presence of the supply zone.

The downtrend of gold from August 2020 till March 2021 was stopped by a biggest up wave as highlighted in orange, which can be considered as a change of character because it changes the trading environment from downtrend into a trading range from June 2021 till now, as boxed up in green.

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In the latest trading range (in green), selling bars are also highlighted in yellow, which correspond to spike of volume (as highlighted in blue). It is worth to note the shakeout type action in Aug 2021 hit the support at 1675 followed by a quick recovery, which defined a swing low.

Subsequent tests formed a higher low with decreasing volume. In November 2021, gold had a false breakout followed by a rejection back into the trading range (in green) with increasing volume, yet it still formed a higher low.

With increasing effort (volume) to push the price down, the result was a higher low, suggested supply absorption at the higher level. This is a bullish behavior in gold based on Wyckoff’s Law – Efforts vs Results. Watch this YouTube video to find out more on how to apply efforts vs results in day trading.

2022 Gold Price Prediction and Outlook

Gold is bullish as long as the support level at 1760 hold. Since gold is coiling within the apex formation (as annotate in the black lines), it is likely to make a move out from it by February 2022.

Should a tight consolidation just under the downtrend line (in black) around 1840 happen, a breakout to the upside to test the resistance zone at 1880-1920 can be anticipated.

The first price target of gold is at 2280 based on a conservative Point and Figure (P&F) price target projection, which is likely to be accomplished in this year under a bullish scenario.

One Chart Reveals The Sector Rotation In The Stock Market

In case you are still wondering what’s happening in the stock market since November 2021, the chart below will give you a clear picture.

Based on the ratio chart IVW/IVE where IVW is S&P 500 Growth ETF and IVE is S&P 500 Value ETF, it can be observed that the price peaked in mid of November 2021 followed by a lower high and lower low and had a sharp selloff in the first week of January in 2022.

As shown the price action of the above chart, the growth stocks started to underperform the value stocks in December 2021 (since it formed a lower high and a lower low) and the scenario is getting worse as reflected in the selloff last week.

Another thing to pay attention to is the increasing of the volume during the correction as this suggested urgent selling by the institutional investors. Nuances of the price and volume are to be studied via volume spread analysis in order to detect the subtle difference between institutional selling versus a normal pullback.

Effect of Fed’s Tapering to the Stock Market

This is In line with the Federal Reserve’s announcement of reducing the monthly bond buying program back in November 2021 because lots of leading growth stocks like Sea (SE), Shopify (SHOP), Upstart (UPST), Zscaler (ZS), Bill.com (BILL) started a steep correction since mid of November 2021.

There are tell-tale signs behind the sharp decline of the growth stocks, which you can refer to the post on the deterioration of the stock market breadth to find out how to judge the overall health in the stock market.

As the growth stocks are very sensitive and vulnerable to credit tightening environment, it is not surprised to see them kick start the correction especially given their rich valuation in 2021.

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Sector Rotation to Energy, Finance and Consumer Sectors

While the sector rotation is on-going with the growth stocks being abandoned, cyclical and defensive sectors like Energy (XLE), Finance (XLF) and Consumer (XLP) are breaking all-time high, as shown in the chart below:

Consumer staple (XLP) sector is traditionally a defensive sector. So, it is not surprised to have money flows in upon a market correction or a technology sector selloff. The cyclical sectors like the energy and finance are bucking the trend of the market thanks to the Santa Claus rally in crude oil and the expectation of rising interest rate macro environment, with at least 2-3 rate hikes coming in 2022 as guided by Fed.

S&P 500 Price Prediction

S&P 500 futures (ES) broke below the critical support at 4710 on 5 Jan 2022 and subsequently it failed to rally back above, which is a bearish sign for more weakness ahead. Should S&P 500 break below 4660, lower price targets at 4600 and 4500 could be expected. Refer to the chart below:

Since S&P 500 is vulnerable for a correction, if you are keen for a long trade, it is essential to carefully select the stocks within these outperforming sectors (XLP, XLE, XLF) with the best entry setup and high reward to risk ratio. Stop loss is essential for trading in case the trade setup fail due to the market weakness. Else shorting weak stocks like those in the ARKK ETF could be a better choice.