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.

2 Stocks From This Defensive Sector Buck The Trend During Market Selloff

After Federal Reserve meeting minutes pointed to a faster-than-expected rise in U.S. interest rates, the 4 major U.S. indices – S&P 500 (SPX), Nasdaq Composite (IXIC), Dow Jones (DJI) and Russell 2000 (RUT) fell significantly. The volatility similar to the Black Friday’s selloff last year is back.

Despite the market selloff, there are still a few dozen stocks showed up in my screener, which is under beta testing. After further filtering based on the price structure and the relative strength, one defensive sector stands out because there are still quite a number of stocks such as Coca-Cola (KO), General Mills (GIS), Tyson Food (TSN), Pepsico (PEP), etc… in a strong up trend and outperform the S&P 500.

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The following 2 stocks are selected based on the price volume analysis and could still provide decent reward to risk ratio with a relatively low risk trade entry. Consumer staples is one of the well-known defensive sectors and these 2 stocks are under the Food Products industry group.

Hershey Foods (HSY) Price Volume Analysis

From the weekly chart as shown below, HSY has formed an accumulation range lasted 18 months from September 2019 until March 2021. After breakout from the accumulation structure, HSY had a steady rally and a shallow pullback from July-November 2021.

Since December, HSY broke above the resistance at 180 and continued to trend up despite the increasing volatility showed up in the broad market.

It can be observed that the volume within the accumulation structure has been decreasing, suggested that the supply is exhausted, which is a classical volume pattern based on the Wyckoff method. If you would like to find out more on the application of Wyckoff method, watch the YouTube video to find out how I derive the directional bias for the current market.

On the daily chart below, HSY is on a climatic run with the presence of supply, which could be vulnerable for a pullback. Should a reversal happen near the axis line at 192 where the resistance-turned-support, that could provide a decent entry by leaning on the support level at 192.

Flowers Foods (FLO) Price Volume Analysis

FLO has started an accumulation range from September 2020-2021 (refer to the chart below). After the breakout in October 2021 followed by a shallow pullback tested the resistance-turned-support area at 24.5, the markup phase started. So far, FLO is travelling within an up-channel, forming a higher high and a higher low.

It is worth noting the two volume spikes as highlighted in yellow because those two bars containing increasing of supply, which essentially stopped the short term up move. After the spike of volume in the first bar in mid of November, a pullback took place and tested the demand line of the channel.

After an even higher spike of volume in the second bar in mid of December on the breakout, the pullback is mild and shallow with decreasing volume, suggested the supply showed up on the breakout bar has been absorbed.

In the latest 2 bars, there are presence of supply as reflected in the increasing volume together with the rejection tail and the smaller price spread, which could be vulnerable for a pullback. Watch out for a pullback or consolidation before the next rally. A reversal entry or a breakout entry is viable while leaning the support at 27.5.

As the bias for the short term direction of the market is down plus the deterioration of the market breadth, it is essential to monitor how the price of HSY and FLO reacts and wait for a confirmation before execution.

What History Says About 2022 Stock Market Performance During US Midterm Election Cycle

Last year in 2021, S&P 500 (SPX) gained 26.9% on the year, just less than 1% away from all-time high. It is the best performing index that beats Nasdaq Composite (IXIC), Dow Jones (DJI) and Russell 2000 (RUT).

Despite the outstanding performance last year, there are a few important events unfolding in 2022 where I have covered one of them – potential effect of macro environment on S&P 500. Next is the 4-years US election cycle.

Cycle Analysis for S&P 500 During US Midterm Election

US election has been an important catalyst for the stock market. Take a look at the annual seasonality chart for S&P 500 during the US midterm election cycle for the past 71 years below:

It is obvious that S&P 500 is in a trading range with increasing volatility to both sides. A pullback starts in January, April to September are the worst months for S&P 500 while the last 3 months are the best in terms of the performance. In short, S&P 500 is very choppy for the first 9 months and one might find the bull momentum is gaining traction only in early November.

The rationale behind the performance of S&P 500 during US midterm election cycle based on the seasonality chart is likely due to the implementation of the unpopular measures to curb the ever-increasing deficit of the government, tightening of the monetary policy with rate hike and tapering of the liquidity that are starting in January 2022.

Should 2022 behave similar to the history of the US midterm election, it will be a challenging year for the stock market when the volatility affects the stock price in both directions.

Trading Tactics for Volatile Trading Range

In a bifurcated market where S&P 500 is mainly in a trading range, the trading tactic is required to be adopted to suit the trading environment, such as to long the outperformers during the up-swing of S&P 500 and to short the laggards during the down-swing of S&P 500.

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In case you are wondering if shorting is risky especially when the S&P 500 is near all-time high, refer to the post on how the market breadth behaves before a stock market crash, where you will discover many stocks outside of S&P 500 (especially the small cap stocks) hit new 52 weeks low since November 2021.

The key is to be nimble and to adjust the trading timeframe in order to beat the market in 2022 because a buy-and-hold or buy-on-dip strategy, which is typically a great strategy for up trending market environment, might not work well in a choppy and volatile trading range.

Unless you are a long-term investor who are willing to hold quality stocks such as buying Apple stock for years and not to be bothered by the volatility within a year or two, you are better reassess your current trading tactics in order to outperform the SPX in 2022 as the macro environment, midterm election cycle and the market breadth all point to a challenging market environment in 2022.

Invest Into Apple (AAPL) With Over 50% Upside Based On Point & Figures Chart

In order to predict the upside of Apple, it is essential to conduct the Wyckoff method for phase analysis to judge if the price structure is ready to enter into the markup phase. Else, one could be buying in the trading range and get trapped for months if not years. Next, Point and Figures (P&F) chart will be adopted for price target projection in Apple.

Wyckoff Method – Phase Analysis

Since the swing low formed in March 2020, Apple had an impressive rally and ended with a parabolic run up with a buying climax (BC) on September 2020 followed by a change of character or an automatic reaction (AR), which defined an up-sloping trading range subsequently. Refer to the chart below:

The uptrend of Apple since last year March has been stopped by the change of character down wave. It has been consolidating within the up-sloping range until the breakout on November 2021, which is part of the sign of strength (SOS) rally.

The sign of strength rally is the final test before the markup phase. In mid of December 2021, a pullback with increasing volume as a backup action (BU) could potentially stop the SOS rally for now and into a trading range between 168-182. The increasing of volume suggested presence of supply and is likely required to be tested.

It is essential for the SOS rally to be successful without failing back below the range. Should Apple commit above 160-167 while the backup action is unfolding, the bullish structure is intact.

There are a lot of nuances in interpreting the supply and demand from the volume together with the price action. Feel free to watch the YouTube video find out how to use price volume analysis on the top 10 stocks of S&P 500.

Apart from using the Wyckoff methods to analyze stocks, monitoring the market insights such as the market breadth is a must in order to understand the overall health of the stock market as a top-down approach.

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After using the Wyckoff methods in terms of the phase analysis and the price volume analysis, we know that Apple’s accumulation structure is near completion. Now is the time to use Point and Figure chart for price target projection.

Apple (AAPL) Price Prediction with Point and Figures Chart

The Point and Figure chart is a powerful tool for price target projection, which it measures if there is enough “fuel in the tank” for the stock price to rally up, based on the Wyckoff’s law – Cause and Effect.

The causes built within the accumulation structure is to be reflected in the price as the effects, which can be illustrated in the Apple’s Point and Figure chart below:

The accumulation structure is divided into 4 segments where we can use each segment to project different price target for Apple. The first target of 159 has been hit, followed by 192 and 216. A maximum target of 282 can be projected based on an aggressive count.

For the Point and Figures price target projection to remain valid, price monitoring for Apple is still required for example, AAPL needs to commit above 160 for the accumulation structure to stay intact.

Should the bullish structure for Apple retain, there is still 57% upside ahead based on the maximum price target of 282.

S&P 500 ETF SPY Stock Price Prediction for 2022

2021 has been a bullish year for S&P 500 ETF (SPY) where it closed at 470.6 at the all-time high level before Christmas, hit a year-to-date gain of 27%.

Macro Environment for SPY in 2022

The Federal Reserve has been under pressure to raise the interest rate in response to rising inflation where the FED officials see as many as 3 rate hikes coming in 2022. Besides, the FED indicated that it will accelerate the tapering of monthly bond buying program in 2022. The FED plans to buy $60 billion worth of bonds each month starting in January 2022, down half the level from the previous amount it bought in November 2021, as reported by CNBC.

On top of that, the global money supply (M2) is expected to decelerate rapidly with acceleration of the reduction of the monthly bond purchasing.

The macro environment in 2022 such as the interest rate hike, acceleration on tapering of the bond buying program and shrinking of the global money supply are likely to pose a challenging environment to the S&P 500 ETF (SPY).

In fact, since FED’s announcement on tapering on bond purchases in November, lots of growth stocks have experienced big drawdowns of 30%-60% from their peak while less than 50% of stocks are above 200-Day average, which was a red flag as detailed in the post on the divergence between the stock market breadth and S&P 500.

Price Volume Analysis for SPY

Despite the challenging macro environment, it is essential to study the price volume analysis for S&P 500 ETF (SPY) in order to form a directional bias and to anticipate the potential movement.

SPY is in an up channel where the axis line (resistance-turned-support) nears 450 has been tested and supported twice. The change of character as defined by the largest down wave has successfully halted the up trend since October and into a trading range between 450-470.

The two pullbacks within the trading range were accompanied by increasing of volume suggested the supply level is still high and likely needed to be tested again.

SPY is at the resistance of 470, which is vulnerable for a pullback. For a bullish case, a pullback forms a higher low above 450 with decreasing volume is ideal.

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Should the support at 450 fail to hold, SPY is likely to test the next support at 430. As of now, SPY is still in Wyckoff phase B where volatility is still high.

Market Internals for Stock Market

Despite the relatively bullish chart in S&P 500 ETF (SPY), the market internals as reflected by the sign of weakness in the market breadth do not paint a bullish picture moving forward.

The conflict between the market breadth and the SPY is because of a handful of heavy weightage stocks still support the price of SPY, unlike many other individual stocks experienced significant pullback since November.

SPY Price Forecast in 2022

Based on the challenging macro environment, the price volume analysis and the market internals, increasing of volatility with a prolonged trading range between 430-470 could be expected for S&P 500 ETF (SPY), once it breaks the support at 450, as shown below.

Should this happen, trading environment will be challenging, which could favor in swing trading and day trading because of the increasing of the market volatility.

Santa Claus Rally for Crude Oil?

US West Texas crude oil futures (CL) attempts to breakout the resistance at 73 and a Santa Claus rally does show up based on the annual seasonality data for the past 21 years.

Seasonality analysis has been working well for West Texas crude oil futures (CL) this year. Take a look at the comparison between the seasonality chart (top pane) from Seasonax (based on 21 years of data) and the crude oil futures (bottom pane) below:

Seasonality Analysis for Crude Oil in 2021

It can be observed that after January’s brief consolidation, a rally started in February followed by a pullback in early of March. Next, the rally started in mid of March till Jun. A pullback started in June till August (annotated in pink). The direction has been consistent with the seasonality chart from Jan until August.

The anomaly stood out from September till mid of October as boxed in yellow where crude oil futures started a strong rally broke above the previous resistance while the seasonality chart was in a consolidation during that period.

A sharp correction in crude oil futures started in October till December has been aligned with the seasonality chart. As the crude oil price and the stock market shows relatively high correlation since November as reflected in the deterioration of the stock market breadth, it is a good idea to pay attention to the broad market movement.

Watch the YouTube video to find out the current market outlook on S&P 500 E-mini Futures (ES).

In December, a double bottom pattern can be observed in the seasonality chart while the crude oil futures had a higher low as a test of the previous selling climax in early December.

Based on the seasonality chart, crude oil is likely to start a rally after the double bottom until early January next year. It appears that a Santa Claus rally for crude oil futures is on its way based on the current price, which aligns with the seasonality chart.

Wyckoff Analysis Methods for Crude Oil Futures

Despite the seasonality chart favors a Santa Claus rally in crude oil futures, it is essential to analyze the price and volume to seek for confirmation with Wyckoff analysis methods.

In June, crude oil futures had an extensive run up after it broke out from 67 and peaked at 76 after forming a buying climax. Next a change of behavior bar, which was the largest bearish bar since the up wave showed up followed by a change of character (the largest down wave) tested the axis line where the previous resistance-turned-support at 65.

From there on, a trading range between 65-76 could be expected according to the Wyckoff methods. A secondary test at 62 in August acted as a spring action of the previous swing low followed by a sign of strength rally peaked at 85, eventually became an up thrust since it failed to commit above the resistance around 77.

After the failure to commit above 77, crude oil futures started a sharp correction with increasing of supply back to the support area of 62-65 of the trading range. The down wave with high supply level has been tested in the past two weeks with decreasing of supply and a higher low, which is an encouraging sign for a bullish case.

Should crude oil futures break above 73, it is expected to test the resistance zone between 75-77 followed by 80, which could be the Santa Claus rally for crude oil futures. Else, it might come back to test the swing low near 65 to consolidate further between the trading range 65-73.

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Here’s How the Market Breadth Behaves Before a Stock Market Crash

There are different ways to interpret the market breadth such as measuring the stocks above 200-Day average as shown in the post on divergence between the market breadth and SPX, or determining the overall net 52-Week high/low in the stock market, which you will find out more in detail shortly.

The Market Breadth vs S&P 500 in 2018

In 2018 after a change of character occurred in Jan, a trading range was formed in S&P 500 between 2530-2880. After a failed breakout in Oct, S&P 500 had a sharp pullback of around 11% off the peak (as highlighted in orange in the chart). During this pullback, the market breadth (as highlighted in orange in the lower pane) broke below the 0 level by a large magnitude.

Subsequently, S&P 500 consolidated in a trading range between 2600-2800 while the market breadth failed to climb back above the 0 level, suggested that there were more stocks broke below 52-Week low than broke above 52-Week high. This was the key when judging the health in the stock market.

The stock market was given multiple chances to recover during the consolidation yet it failed to perform without committing above the 0 level as shown in the market breadth chart. This was an obvious market weakness because there were more bearish stocks than the bullish stocks. After close to 2 months of consolidation with market breadth below 0 level, S&P 500 eventually had a sharp selloff in Dec.

The Market Breadth vs S&P 500 in 2020

In 2020 there was an abrupt pullback in S&P 500 off the all-time high level triggered by the COVID-19 news while the market breadth flipped to below the 0 level with a large magnitude. Similar to 2018’s, the market breadth failed to rally back above the 0 level after the first leg down. This was where things turned sour as S&P 500 had a sharp drop just within 3 weeks after the inability to rally up in the market breadth.

Another thing to pay attention to is the direction of WTI crude oil (CL) because it has a very high correlation with the S&P 500 where it also crashed in 2018 and 2020 together with the broad market index. Check out my recent weekly live session video for free where I analyzed the seasonality of crude oil and the price volume analysis with an analogue to refer to.

The Market Breadth vs S&P 500 in 2021

In Nov 2021, the market breadth had another sharp drop below the 0 level with a large magnitude similar to 2018’s and 2020’s, yet S&P 500 is just 3 % away from the all-time high.

After the drop in Nov, there was an attempt to rally above 0 level in the market breadth with almost immediate rejection. This is similar to 2018’s scenario but with a stronger S&P 500. This is mainly because of the weightage in S&P 500’s components (similar to Nasdaq 100). Refer to the price volume analysis on 5 of these heavy weight stocks. When these stocks fail to hold, S&P 500 will start to crack.

In this bifurcated market, one could trade in either direction with care as it is expected to have high volatility in both directions. A break below 4600 should trigger more selling in S&P 500 to test the swing low at 4500. I will share more on the tactics for both long and short trades in this current volatile market in my weekly live session on Sunday. Click here to visit TradePrecise.com to get more market insights in email for free.

These 5 Stocks Will Make Or Break Nasdaq 100 – Price Volume Analysis on AAPL, MSFT, AMZN, TSLA, NVDA

There is little damage in Nasdaq 100 (NDX) index despite the number of stocks above 200-Day Average is only at 58% as of 16 Dec 2021, as shown below:

This is not a healthy sign you would like to see for the stock market breadth in a bull market. There was a divergence between Nasdaq 100 and the market breadth as shown in the green and red arrow above in 2018 and 2020. As NDX made a higher high, the market breadth headed to lower high suggested that there were lesser stocks participated in the uptrend. A market selloff came subsequently.

Now, there is a divergence between Nasdaq 100 and the market breadth again, which is similar to 2018’s based on the chart above. Nasdaq 100 is at a vulnerable position, which could be easily hit by a market correction should these 5 giant stocks – Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Tesla (TSLA), Nvidia (NVDA) drop further. It is important to analyze these stocks with price volume analysis as the weightage of these 5 stocks account for 40% of Nasdaq 100. So, they could easily make or break Nasdaq 100. Refer to the YouTube video to find out how to apply price volume analysis for detailed market update.

Price Volume Analysis on AAPL

As shown in the chart above, Apple (AAPL) broke out on 17 Nov 2021 from the immediate downtrend resistance line and the localized range with increasing volume. Despite having a reaction at the up-sloping range, the magnitude was shallow and subsequently AAPL went into a climatic run with overbought condition and peaked at 180.

A change of character bar with spike of supply showed up on 13 Dec, which was the largest bearish bar since the breakout from Nov, stopping the uptrend for now. A short-term bearish scenario is expected in AAPL. A break below 170 could trigger more selling ahead and to test the support zone near 160.

Price Volume Analysis on MSFT

Microsoft (MSFT) peaked on 22 Nov with a change of character bar followed by a pullback to 320. So far it is consolidating within an apex formation. For a bullish scenario with supply absorption, MSFT is expected to have contraction of volatility together with decreasing volume. Yet, the volatility and the volume are still high in general, which could be an indication of a bearish bias. A break below 320 could test lower support near 300 followed by 280.

Price Volume Analysis on AMZN

Amazon (AMZN) has been consolidating within a trading range between 2870-3770 since Sep 2020 after a change of character. Supply has been decreasing within the trading range, which is an encouraging sign for an accumulation bias.

The recent pullback in Nov accompanied by slight increasing of supply and so far, is not yet threatening. Should further weakness triggered by the broad market, AMZN could test support at 3200 followed by 2870. Directional bias is neutral for AMZN since it is still within a trading range.

Price Volume Analysis on TSLA

Tesla (TSLA) had a parabolic run after broke out the resistance on 21 Oct. A change of character bar with spike of supply has shown up on 9 Nov, which stopped the uptrend and turned TSLA into a trading range between 1000 – 1200.

Recently, TSLA broke below the psychological support at 1000 with increasing supply hence formed a sign of weakness followed by inability to rally up, suggested more weakness ahead to test the support area 800-900.

Price Volume Analysis on NVDA

Nvidia (NVDA) had a climatic run up with a buying climax formed on 4 Nov with spike of stopping volume. The uptrend was stopped and a trading range was formed between 320-280. The up thrust (false breakout) from 22 Nov -1 Dec came with increasing of supply suggested selling into strength.

The recent pullback broke below the support at 280 followed by a rally after FOMC announcement on 15 Dec, which hit only ½ of the trading range and a reversal bar showed up yesterday with increasing of supply suggested more weakness ahead. A break below the swing low at 272.5 could trigger more selling to test lower support area 200-220.

Bearish bias is formed in 4 out of 5 of these heavyweight stocks while AMZN is the only one with neutral stance based on the price volume analysis. Should they drop further as per the analysis above, Nasdaq 100 (NDX) is likely to experience market weakness ahead test 14500-15000 support area. I will be discussing more on the tactics to deal with the current market condition in my weekly live webinar on Sunday. Click here to visit TradePrecise.com to get more market insights straight to your inbox for free.

 

A Divergence Between S&P 500 and the Stock Market Breadth May Signal a Market Top

SPX Daily Chart

Based on the comparison between the Percentage of stocks above 200-Day average and the SPX for the past 10 years, the divergence happened since Feb 2021 as the SPX continue to trend higher, the number of stocks participated in the uptrend is getting lesser, deteriorated from 90% to 42% as of last Friday since Feb 2021.

In fact, many growth stocks such as Affirm Holdings (AFRM), CrowdStrike Holdings (CRWD), Fiverr International (FVRR), MercadoLibre (MELI), Sea (SE), Twilio (TWLO), DocuSign (DOCU), Roku (ROKU), PayPal Holdings (PYPL), etc…experienced big drawdowns range from 32%-65% from their all time high.

There are only a handful of outperforming stocks like Apple (AAPL), Microsoft (MSFT), Lam Research (LRCX), Broadcom (AVGO), Qualcomm (QCOM), etc… supporting the S&P 500 index.

The divergence between the SPX and the stock market breadth are certainly not a healthy sign for the bull market especially it has been persisting for nearly 10 months. It might only take a few early capitulations from the funds to trigger a broad market sell-off when the market is at the vulnerable point.

It can be noticed from the chart that 50% level is a support. When the percentage of stocks above 200-Day average dropped below 50%, there was a relatively sharp sell-off in SPX, as highlighted in orange color in 2011, 2014, 2015 and 2018. The market breadth is often acted as a leading indicator before the damage hits the SPX.

Current Market Outlook on S&P 500

S&P 500 did have a rally after an oversold condition at the support area while there was presence of demand as pointed in last week’s article. Detailed analysis can be found by watching the price volume analysis for the market outlook on YouTube.

As shown in the screenshot on 8 Dec from my private Telegram Group for Mastering Price Action Trading course above, the four US major indices – S&P 500 (SPX), Dow Jones (DJI), Nasdaq (IXIC) and Russell 2000 (RUT) are likely in a consolidation with high volatility to both sides.

It is obvious that there was an increase of supply on the down wave since Black Friday selloff, which is yet to be tested. As S&P 500 approaches the resistance zone at 4700, it could be vulnerable for a correction when the sellers step in to lock in profit or initiate short positions. Should a correction happen, the previous swing low near 4500 is a natural area for buyers to step in for bargain hunting.

It is critical to judge the supply level together with the characteristics of the price action (spread and velocity) to anticipate next move. For a bearish scenario, watch out for a Wyckoff up thrust (false breakout) with increasing supply followed by a break below 4650. For bullish case, S&P 500 needs to commit above the resistance level at 4720.

Based on the market breadth and the Wyckoff phase analysis on SPX, a trading range between 4500-4700 is expected. There could be other headwind ahead such as Fed’s tapering of the bond-buying program and an urgency for interest rate hike, which I will be discussing in my weekly live session on Sunday. Click here to visit TradePrecise.com to get your weekly market insights straight to your inbox for free.

These Warning Signs Point to More Weakness Ahead in The Stock Market

After the Black Friday selloff, there was increasing of supply last week to push the 4 US indices down. As shown in the daily chart below, S&P 500 E-mini Futures (ES), E-mini Russell 2000 (RTY) and E-mini Dow Jones Futures (YM) broke the support levels (as annotated in the orange line) on 26 Nov (highlighted in blue) while the outperforming index, Nasdaq 100 E-mini Futures (NQ) also broke the support on 1 Dec followed by a test and continuation to the downside in the next 2 days.

S&P 500 Price Action and Volume

It is crucial to analyze the price action and the volume in order to find out the dominating force (either supply or demand) in the market in order to anticipate the market direction.

As shown in the screenshot from my private Telegram Group for Mastering Price Action Trading above, there was presence of demand on 30 Nov 2021 when compared to 26 Nov’s, yet the results for the next day was bearish with big price spread, suggested that the demand was overwhelmed by the supply, which pointed to more weakness ahead.

As S&P 500 tested the first support area near 4500, it rallied up after an oversold condition as it hit the oversold line of the down channel as shown above. There was a shortening of the thrust to the downside with increasing efforts suggested presence of demand at the support area. Once again, the bull could have a chance to rally up after reaching the oversold condition. Pay close attention to how S&P 500 will interact at the axis line (where the support-turned-resistance) near 4625 if it happens.

Given the significant increase of the supply together with the strong bearish momentum as shown in the price spread and velocity since 22 Nov, we could expect a lower low test to around 4450.

Intermarket Relationship: US Dollar Index (DXY) vs S&P 500

Next, let’s take a look at the intermarket relationship between the US Dollar Index (DXY) and S&P 500 below:

As shown in the weekly chart comparing the US Dollar Index (DXY) and the S&P 500, DXY formed a downtrend since 2017 while S&P 500 was in a nice up trend. In 2018, DXY started a rally and flattened in 2019 while S&P 500 formed a correction and consolidate in a trading range from 2018-2019. In 2020 during the COVID -19 selloff, DXY spiked up while S&P500 had a deep correction. Since the COVID-19 low, DXY was in a downtrend and formed a base in the first half of 2021 while S&P 500 in a strong up trend.

In Sep 2021, DXY broke out from the base and is currently in an uptrend heading towards the previous high at 100 while a correction is still unfolding in S&P 500.

Based on the inverse proportion relationship between the US Dollar Index and the S&P 500 since 2017, this could point to more weakness ahead in S&P 500 given the current strength in the US Dollar Index.

Above are only two of the many key factors I analyze daily to anticipate the market direction. If you would like to stay on top of the market, click here to join my live session every week to discover more market insights and stock trading opportunities.