Dow, Nasdaq, S&P, and Russell – End of 2021 Technical Analysis Part 2

Dow, Nasdaq, S&P, and Russell - End of 2021 Technical Analysis

Originally published on Jan. 21, 2022 by TraderStef at CrushTheStreet

As with Part 1, today’s overview is strictly for technical analysis grunts without financial risk issues, geopolitical concerns, or satire. Below are multiple economic items of interest in bullet point format for your reading pleasure. They have squeezed the stock market this month along with other variables that are being priced into the market at a snail’s pace with caution by the finance overlords. The world is twisted with big issues and replete with rabbit holes that will not be analyzed today and distract from the charts.

  • Lacy Hunt: Quarterly Review & Outlook 4Q21, Bonds – Hoisington Investment Mgmt.
  • December ISM Services index plunges to 62% vs. 69.1% – Calculated Risk, Jan. 6
  • Consumer Credit Card Debt Soars Most On Record, Savings Gone – ZH, Jan. 7
  • Real Wages Plummet As Inflation Hits The U.S. Recovery – Dan Lacalle, Jan. 9
  • Inflation hits four-decade high, consumer prices soar 7% – NY Post, Jan. 12
  • Retail sales weaker in Dec. -1.9% vs. -0.1% forecast – Liz Ann Sonders, Jan. 14
  • Empire State Mfg. Index Plunges to -.7 vs. 31.9 in Dec. – Advisor Perspectives, Jan. 18
  • Worst January consumer confidence result since 1992 – Financial Review, Jan. 18
  • Jeremy Grantham: U.S. market approaches end of ‘superbubble’ – MarketWatch, Jan. 20
  • Ukraine war if Russia recognizes breakaway regions – pro-Kremlin MP – Reuters Jan. 20
  • Danny’s View: Worst Price Action Since the Credit Crisis – MrTopStep, Jan. 21
  • Where’s That ‘Fed Put’? Scorched Dip Buyers Confront the Market – Bloomberg, Jan. 21

Geopolitical issues, a potential war with Russia, the ongoing supply chain crisis, a taper attempt by the Federal Reserve, and circumstances surrounding the origin and ramifications of the pandemic and jabs are covered in the following articles I published since Oct. 2021. An overview on inflation, numerous economic issues, and what to expect in 2022 is covered by Jim Rickard’s in an interview with Robert Kiyosaki at the end of today’s analyses.

Intermittently shutting down the news, socials, and pundit opinions is a required exercise for all traders that are cozy with their trading platform setup and practice risk management skills for reading technical charts. It eliminates noisy information while hunting and executing trades, puts emotions to rest, and sharpens the skillset required to read early signals in an individual equity or the major indices before they’re impacted in a bullish or bearish direction.

Let’s go to the Dow, S&P 500, NASDAQ 100, and Russell 2000 charts and see what happened since the Dec. 31 analyses. The takeaway for all four indices was:

caution is warranted in this long and short scalping environment and layering capital into long-term positions is not recommended at this time.”

That same advice applies today. It’s not the time to be a hero and impale yourself with falling knives. 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 Jan. 21, 2022 close…

Excerpt from the Dec. 31, 2021 weekly chart analysis:

“The third tap on the lower trendline (Ascending Broadening Wedge) was nearing the elusive 50 Exponential Average (EMA). The subsequent pivot reached an all-time high this week, but ended with a bearish Plunger Candle (aka Shooting Star).”

Price action on the Dow made a slightly higher all-time high in early January and tapped the 61.8% Fibonacci extension level, then proceeded to rollover on negative economic news and data as headlines about Russia and the U.S. butting heads over Ukraine came to the forefront. The first weekly candle following the Dec. 31 analyses printed a clean bearish Shooting Star with a substantial increase in sell Volume, which reinforced the previous week’s bearish Plunger candle. The correction thus far is -7.3% off the 36,953 high with today’s close at 34,265.

The Dow is not as bearish as the other indices because the price action has not yet breached the Ascending Broadening Wedge’s lower trendline and the 50 EMA. There is some support at the 38.2% Fibonacci extension where a triple candle low with large buy Volume created the second pivot off the Ascending Broadening Wedge’s lower trendline. The 33,312 lateral support relies on underside buy Volume from late Mar. 2021, and topside buy Volume in mid-June at the Tweezer Bottom that anchored the Ascending Broadening Wedge. If the price action breaks below the 23.6% Fibonacci confluence, there could be a wicked drop to the Feb. 2020 highs where the Fibonacci extension levels were drawn up prior to the 1Q20 pandemic panic.

The DMI-ADX setup could morph into a negative power trend if an Alligator Tongue takes hold, the StochRSI is trending negative into oversold territory, and sell Volume increased substantially over the last three weeks but is not in a rising trend. The chart is bearish and will become more bearish if the 50 EMA is breached on heavy sell Volume and 33,312 lateral support is challenged.

$SPX S&P 500 Index weekly chart as of Jan. 21, 2022 close…

Excerpt from the Dec. 31, 2021 weekly chart analysis:

“This week saw a new all-time high of 4,808.94 and ended with a bearish Plunger candle close at 4,766.19… The 50 EMA is trailing far below the price action since the 2020 election and is overdue for a visit.”

In similar fashion as the Dow, the S&P 500 printed a slightly higher high immediately after 2022 chimed in and began rolling over for the same reasons. The Plunger candle was followed by a Bearish Engulfing candlestick, then a Long Legged Doji that’s indicative of indecisiveness, and finally this week’s bearish Marubozu candle cut through the 4,530 lateral support like butter and breached the Ascending Broadening Wedge’s lower trendline. The correction thus far is -9% off the 4,819 high with today’s close at 4,398.

The Marubozu candlestick may indicate that further downside is baked in the cake. There is some hope. A large chunk of buy Volume is sitting parallel to the 50 EMA at 4,327 as of today’s close, and just above the 4,279 lateral support drawn back to spring of 2021 where candlesticks chopped along the first Fibonacci confluence. If things really get ugly, 4,060 is the next bus stop.

The DMI-ADX is in a negative trend and on the cusp of forming an Alligator Tongue power trend setup, the StochRSI is a glass half empty that’s approaching oversold territory, and sell Volume is substantial but not trending upwards. The chart is bearish and will become more bearish if 4,279 is breached with conviction.

$NDX Nasdaq 100 Index E-Mini Futures weekly chart as of Jan. 21, 2022 close…

Excerpt from the Dec. 31, 2021 weekly chart analysis:

“After printing an all-time high of 16,767.50 in the fourth week of November, the price action has been volatile with large sell Volume spikes and falling buy Volume into the holiday season. This week closed with a bearish Gravestone Doji.”

The Up Channel’s lower trendline was decisively breached this week with a bearish Marubozu candle. The downside price action was halted in its tracks slightly above the 14,368 lateral and 23.6% Fibonacci level, and just below the 50 EMA’s 14,639 close. The correction thus far is -14% off November’s 16,767 high with today’s close at 14,411.

The DMI-ADX is not set up with the perfect Alligator Tongue for a negative power trend with the black ADX line piercing the green DMI from below, but it must still be respected. The StochRSI has broken down and is skimming along oversold territory. There are two chunks of buy Volume from early spring and summer of 2021 that will provide some support beneath the 14,030 lateral. The chart is bearish and will become more bearish if 14,030 is breached on decisive sell Volume. The 38.2% Fibonacci at 12,894 would be the next target.

$RUT Russell 2000 Index E-Mini Futures weekly chart as of Jan. 21, 2022 close…

Excerpt from the Dec. 31, 2021 weekly chart analysis:

“Last week’s rally provided the momentum that pushed the price above the red trendline this week. The price action closed at 2,242.80 and printed an indecisive Spinning Top candlestick… If the (50 EMA) and 23.6% Fibonacci is breached to the downside on large sell Volume, watch out below.

Spinning Tops must be closely watched and this one was the peak of a Dead Cat Bounce to end 2021. The following week printed a Plunger on top of the 50 EMA and last week another Spinning Top. This week’s Marubozu candle put a fork in the pig and decisively breached the Right-angled Ascending Broadening Formation’s lower trendline. The correction thus far is -19.5% off November’s 2,461 high with today’s close at 1,984 (Orwellian).

There is a chunk of buy Volume in 4Q20 that will provide support as the price action chops downward to the 38.2% Fibonacci level around 1,883, and potentially the 50% Fibonacci at 1,704 where solid support exists. The DMI-ADX is in a negative power trend with an Alligator Tongue on the rise, the StochRSI is skimming along oversold territory and could remain there for an extended period of time, and the sell Volume is huge and trending upwards. The Russell is the most bearish among the indices. Hang on tight and wait for a bottoming pattern to emerge before committing any long positions.

What is the Real Risk in 2022? – Robert Kiyosaki & Jim Rickards, Jan. 12

Plan Your Trade, Trade Your Plan

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