The stock market reflects the collective mindset of millions of participants, and an objective chart interpretation is usually worth a thousand polls. On October 14th, I published this article calling for the $SPX (S&P 500) to pull back to 2014-2020, and I've been warning you of the strong possibility of a Brexit-like event since. This call has nothing to do with the ultimate outcome of the presidential election as I certainly don't have a crystal ball. Rather, it's based on my interpretation of several price and relative-strength price ratio charts which seem to be conveying a risk-off attitude in the face of uncertainty, not to mention an obsession about the likelihood of a December rate hike once the election is finally in the rear view mirror.
The non-committal attitude on the part of investors was on full display last Friday afternoon when the market experienced a "tail" event (chart 1) in response to the news about the "FBI letter", hinting towards what to expect in the coming few days/weeks. Stocks are currently going through a risk-off phase not unlike that of late-summer 2012 which ended on November 16th and gave way to the anomalously bullish 2013.
Chart 1. A "tail" event took place on Friday afternoon when price slid down the Bell curve to set a new weekly low.
Should this short-term call prove accurate, I'd then be on the lookout for the start of a 2013-like bull run aiming for the [2,400-2500] range on the $SPX. Yes, the social media sphere is cluttered with all sorts of forecasts, but I'm lucky to say that the majority of mine have been on the money since the crash of 2011. (For example, my February 2015 forecast called for a major correction in the months to follow). Moreover, the current forecast extends beyond the aforementioned window; I'm calling for a dramatic correction to begin upon reaching the [2400-2500] milestone, aiming to retest the 2015-2016 lows.
The Week Ahead
Chart 2 below was published last Thursday. It depicts a Head-and-Shoulders (HS) continuation pattern on the $SPY's hourly chart, aiming for the 210 area. Chart 3 depicts a mature weekly auction whose POC/vPOC are in the [213.80-214] zone, which I strongly feel should prove insurmountable throughout the week. Hence, my commitment last Friday afternoon to an aggressive bearish position via the weekly 214/215 credit call spread. I'll even go as far as to say that any attempts at the 213 level will likely be rejected. Why? As shown in chart 4, the developing yearly vPOC is at 213, which on Friday posed very little support on the way down to 212 and below. For what it's worth, today's high so far has been 213.
One more clue to glean from chart 4 is the yearly vPOC (i.e., last year's), which stands at 210. Clearly, this explains why the HS pattern in chart 2 has its sights set on this price objective.
Chart 2. HS continuation pattern.
Chart 3. Weekly auction marketplace chart.
Chart 4. Yearly auction marketplace chart.
Finally, chart 5 depicts the weekly open interest. Should my analysis prove accurate, I'd look for a weekly close on the $SPY near 210-211, possibly a bounce off that level towards whatever the developing weekly POC/vPOC happen to be at by Friday.
Chart 5. Weekly open interest. I'd be looking for $SPY to close the week in the -210-211] range.
On a final note, I'm conducting an anonymous poll ahead of the November 8th election. The purpose of the poll is to retrospectively gauge its accuracy relative to the ultimate outcome on November 8th. It's purely for fun. I encourage you to participate ONLY if you're eligible to vote in the actual election.
Peter Ghostine (@peterghostine)
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