To The Moon

Oversold market and seasonal tailwinds

The markets are deeply and way oversold. No other ways of saying that. Can it go lower? Yes it could. But the probabilities of it rallying upwards in the near term are higher than not based on technicals and sentiment. 

Sentiments are pretty bearish at the moment and the contrarian trade is up. Technically, both the broad market index and the Nasdaq are pretty much extended in their fifth wave of the fifth wave of what looks like an ending diagonal. And ending diagonals tend to have sharp snapbacks. Indicators also look at stretched oversold levels and pretty ready for a rebound. Inagine a loaded spring. That is what the markets are looking like to me. The Nasdaq has also made a divergence and a higher low compared to the SPX on the micro charts. 

The broad market index has also broken the pivot at 4165 which I was looking at to risk manage. Hence, I am now leaning towards a more bearish count on the SPX. I believe the top for the broad market index is in, that top being in July. A year end rebound and rally is still possible but that will be a more probable lower high as a wave 2 with this being the first wave of the C wave down. 

Nasdaq on the other hand looks stronger and might just eke out a higher high and postpone its C wave a bit later out. It is carrying the stronger names afterall. 

But on the whole, the markets are being supported by only a handful of names, more specifically the magnificent 7 as they call them which makes up a huge percentage of the index. And as long as these names hold up, the markets seemingly do. However, the rest of the markets are already in free fall. Just look at equal weight SPX, mid caps, small caps, financials, ARK and transports. All of them have broken trend lines on the elevator down. So that in itself are showing crack signs in the market.

So depending on the market, divergences are clear on general market trend. However, near term wise, markets are pretty oversold on stretched technical patterns on bearish sentiments. So I believe a market rebound is imminent with a possible year end rally on the back of seasonal tailwinds. Care must be emphasised though as this is not a rally to chase but one to derisk in my opinion. 

Disclaimer: Please kindly do your own due diligence as this is a sharing article and in no means financial advise. I am just sharing my opinions and thoughts.

Thanks for reading my commentary. Hope it helps!

Stay safe! 😊

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