Originally published on Oct. 12, 2021 by TraderStef at CrushTheStreet
Today’s analysis includes a few choice articles, charts, and interviews as events impacting the stock market are increasingly nefarious. In addition to my usual Dow and S&P 500 technical analysis, the NASDAQ 100 and Russell 2000 charts will follow the topics at hand. Stay abreast of the following issues that will impact stock markets and the Fed’s next Taper Caper decision slated for November.
Fed Monetary Policy/Taper Caper
- FED: “DECENT JOBS REPORT WOULD SUPPORT TAPER START” – TraderStef, Sep. 22
- September Jobs Report Slowest in 2021 Complicates Fed Taper Plans – BNN, Oct. 8
- A record 4.3 million workers quit their jobs in August – CNBC, Oct. 12
- Vaccine Mandate Impact on Job Market – Tucker Carlson Tonight, Oct. 11
Evergrande Debt Default Contagion
- Evergrande default looms as another developer warns of trouble – CNN, Oct. 12
U.S. Debt Default Showdown Extended
- House to vote on two-month debt ceiling increase to avert default – NBC, Oct. 12
Fed 3Q21 GDPNow Plunges to 1.3% vs. July’s 6.1% Estimate
Record Reverse REPO Operations
- Fed reverse repos sets $1.6 trillion record on Thursday – MarketWatch, Sep. 30
Supply Chain Crisis/Energy
- Shipping and Supply Chain Crisis Will Not End Anytime Soon – TraderStef, Aug. 25
- Inside America’s Broken Supply Chain – Washington Post, Oct. 2
- Soaring Energy Prices Raise Concerns About U.S. Inflation, Economy – WSJ, Oct. 10
Inflation, Deflation, Disinflation
- The Inflation, Deflation, and Disinflation Rabbit Hole – TraderStef, Apr. 30
Brinkmanship and War Drums with China vs. Taiwan
- Preparing for War With China at All Costs – TraderStef, Oct. 8
Let’s move on to the technical analysis. I suggest a review of the “Dow and S&P 500 on Jabbed Life Support – Technical Analysis Part 2” before continuing. To view a larger version of any chart below, right-click on it and choose the “view image” option.
$DJI Dow Jones Industrial Index weekly chart as of Oct. 12, 2021 close…
Excerpt from the Sep. 22, 2021 weekly chart analysis:
“There are no more lower trendlines to breach since the Mar. 2020 low and the price has not closed back above the Up Channel’s lower trendline that was breached last week…. The buy and sell volume continue on a downward trend since the Mar. 2020 low, and that divergence along with 100% upside in price is indicative of a potential correction sooner than later… Caution is warranted in this scalping environment, and layering large long-term positions is not recommended at this time.”
The mid-June 2021 Tweezer Bottom established a base for an Up Channel that led to the 35,631 all-time high during the week of Aug. 16. The Evergrande market panic was responsible for the first breach of the Up Channel’s lower trendline, and that downward trend has continued. In order for the price action to recapture the August high, the topside red trendline, the Up Channel’s lower trendline, and the Fibonacci confluence must all be taken out. Dip-buying surfaced in the 33,600s around the 38.2% Fibonacci extension and just above the 33,272 lateral support drawn back to the Tweezer Bottom. Note that the buy Volume for the candlesticks that broke away from the Ascending Broadening Wedge is responsible for the Tweezer Bottom’s 33,272 lateral support.
The 50 Exponential Moving Average (EMA) is steady and currently at 32,927, the DMI-ADX remains in a negative trend with an bearish Alligator Tongue setup, the StochRSI is flatlined in oversold territory with no sign of recovery, and Volume has increased since mid-Sep., but not enough to breach the overhead red trendline. Caution is warranted in this long and short scalping environment. Layering capital into long-term positions is not recommended at this time since the chart remains bearish.
$SPX S&P 500 Index weekly chart as of Oct. 12, 2021 close…
Excerpt from the Sep. 22, 2021 weekly chart analysis:
“Volume continues on a downward trend since the Mar. 2020 low, and that divergence with the 100%+ upside in price says a correction is in the oven… As noted in the previous analyses, don’t be fooled into complacency because news cycle volatility is unprecedented and price action can break up or down quickly.”
What appeared as an Up Channel in Sep. was actually a bearish Rising Wedge. Since printing an all-time high of 4,545.85 during the week of Aug. 30, the SPX has continued on a downward trend, with a 4,279 low last week. The opening and closing prices for the last three weeks have remained above the 78.6% Fibonacci extension at 4,338, but the highs have continued onward along the topside red trendline.
The DMI-ADX remains in a negative trend with an Alligator Tongue setup, the StochRSI is deeply oversold but both indicator lines haven’t bottomed out together, and Volume has increased since mid-Sep. and kept the price above the 78.6% Fibonacci extension, but not enough to breach the overhead red trendline. If the 4,279 low is taken out on high sell Volume, there is not much support until the 61.8% Fibonacci extension at 4,136, then the 50 EMA currently at 4,090, and finally the 4,060 lateral. Note the buy Volume for the candlesticks that broke away from the Ascending Broadening Wedge. That volume would provide the final support around the Fibonacci confluence in the upper 3,990s.
Caution is warranted in this scalping environment, and layering large long-term positions is not recommended at this time. The chart remains bearish.
$NDX Nasdaq 100 Index E-Mini Futures weekly chart as of Oct. 12, 2021 close…
A Tweezer Top in Sep. printed an all-time high of 15,701, and the price action pivoted off a low of 14,385 last week. The Up Channel on the Nasdaq chart is slowly tightening and may qualify as a bearish Rising Wedge. The price action continues in a downtrend and has not breached the lower trendline of the ‘channel’ but is threatening to do so. Note the wide chunk of buy Volume for the candlesticks below the 14,059 lateral support area. If that level is breached with conviction, 13,700 is the next bus stop around the 23.6% Fibonacci and 50 EMA.
The DMI-ADX is in a negative trend, the StochRSI is deeply oversold but both indicator lines haven’t bottomed out together, and the Volume is unremarkable. The chart is borderline bearish and caution is warranted in this scalping environment. Layering large long-term positions is not recommended at this time
$RUT Russell 2000 Index E-Mini Futures weekly chart as of Oct. 12, 2021 close…
The Russell has a different topping pattern and study characteristics than the previous charts. A topside Descending Triangle
is typically bearish, and both the all-time high at 2,368 and the most recent low at 2,093 were printed in March. If the 50 EMA and lower trendline of the Descending Triangle are breached, the next bus stop is the 23.6% Fibonacci at 2,033. If 2,033 is breached with conviction, there is a large chunk of buy Volume with the candlesticks between Nov. and Dec. of 2020 that will provide several support levels between the 23.6% and 38.2% Fibonacci levels.
The DMI-ADX is in a negative trend, both indicator lines on the StochRSI are oversold, and sell Volume has increased over the last few weeks. The chart is ripe for long and short scalping, and layering large long-term positions is not recommended at this time.
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