From bad to ugly. An extraordinary week with volatility off the charts.
Panic selling and panic buying.
A visit to 2400 in overnight action Thursday and a state of emergency announcement.
A closing short covering move into the last minutes of the week providing some relief to the mayhem and close enough to the Cover Signal level on the recent Sell Signal to suggest at least some kind of recovery may be ahead.
So, what's next?
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As we can see in the chart below with the T volume oscillator*, the rapid drop coincided with the completion of the very large T structure which originates at the high in the oscillator on 18 January 2019 – after the buying surge from the December 2018 panic low – and centered on the previous major oscillator low on 08 May 2019.
With the extreme selling we can see the 3 major moves down forming deep lows in the oscillator in the -200 area. The end of week surge places the T volume oscillator up above the level of the previous high on 10 March and potentially above the short cash build up line ** – suggesting buying power for a recovery move of some kind.
Of course a higher low in the oscillator would be preferable, especially if accompanied with a lower price.
** The T volume oscillator is an indication of Buying Power within the market as a whole
** The cash build-up line is a declining line drawn above a series of lower highs made in the oscillator.
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Zooming out to the weekly chart, we can see that the late recovery to 2700 places the market back above the trendline from the 2016 low and action above 2600 is consistent with a potential recovery, and some kind of bounce for a week or two would be consistent with the previous collapses from the all time highs.
However, a weekly close below the channel would suggest a more protracted decline and potentially target the December low at 2350 or even lower.
Is the market starting to map out a very large megaphone formation – with a series of expanding highs to lows? If so this maybe looks for support in the 2000 area and the potential for re-testing some of the highs and lows during the 2015-16 period.
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The monthly chart shows how the market has currently bounced at the strong support of the black line, lower bollinger band and at the rising trend lines from the 2009 low and from the 2000 high, showing how fundamentally important the 2500 level is.
Key levels above are the red line at 2886 and the green line at 3012.
Penetration of the red line is a Bear Market signal. A Bull market finds support at the green line.
In the previous severe bear markets we can see that price bounced at the black line and recovered to the red and green lines but turned back down again. Alternatively, in 2016 we can see that the black line held and the market eventually resolved higher.
The long term oscillator is now weakening towards a long term Sell Signal.
If the market is entering a severe Bear Market we can see that there is significant downside once 2500 gives way.
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2020 is bringing some fast and furious action in the market with a range that became increasingly expansive since the move above 2500 in 2017. We can only assume that this will continue. This is a Brave New World.
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Regardless of whether the market can recover or whether further significant lows are ahead of us, the simplicity of the proprietary price based S/T Signalling System will continue to keep us on the correct side of the market, with price currently back near a Cover Signal level above 2700 on 13 March 2020.
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Disclaimer: This is the diary of a personal trading system, its methodology and the signals that it is producing. You are welcome to follow along but please understand that the information presented here is for educational purposes only. No recommendations are being made to buy, or sell stocks, options or futures contracts. Please consult your own financial advisor before making any investment decisions.
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