Stealth Ahead of Rate Decision
Last week, the $S&P 500(.SPX)$ printed a bullish engulfing candle that opened the door for bullish continuation. Given the deteriorating stock participation, I provided five key indicators to watch; if their thresholds were breached, a market pullback could be triggered. I combine technicals with specific price levels to avoid premature decisions, as any true reversal needs confirmation.
Giants like $Broadcom(AVGO)$ $Alphabet(GOOG)$ $Oracle(ORCL)$ $Apple(AAPL)$ kept the $NASDAQ 100(NDX)$ and SPX afloat last week while the percentage of stocks falling below their 50 daily moving average increased, this conditions continued through the first half of this week, and by Wednesday, the Dow Jones and the Volatility Index were on the verge of validating a pullback. However, the VIX reversed exactly from 15.3, the precise threshold I identified to differentiate between bullish and bearish conditions for the broader market.
By Thursday, many stocks bounced, improving the breadth indicators we track. This wasn't a rally driven by a few tech giants; hundreds of stocks participated, including $Apple(AAPL)$ $Tesla Motors(TSLA)$ $Berkshire Hathaway(BRK.B)$ $Wal-Mart(WMT)$ from our permanent watchlist. This broad strength helped the SPX consolidate above the key $6,486 level. The stock participation was so broad that all 11 S&P sectors finished with a green week. The heat map below summarizes this price action for the last five trading days.
The market has behaved consistently with the 90%+ up-day signal from August 22nd. As compared with previous occurrences in the Market Intelligence publication (linked below), this bullish overextension is following the impulse this signal has historically anticipated.
When a Bullish Signal Appears in a Late Stage Rally
Each security analysis in this publication uses a specific framework of price levels: a central weekly level, three layers of resistance, and three layers of support. This modeled structure has proven remarkably accurate at framing the price action for all securities.
For example, last week's bullish setup in $iShares Silver Trust(SLV)$ suggested a first target of $37.8, which was hit on Monday. As the bullish momentum continued, the price quickly consolidated above $38.3 by mid-week and approached the third resistance layer at $39.0 by the week's end.
$NVIDIA(NVDA)$ provides another strong example. Last week's analysis anticipated a bounce due to daily oversold conditions. Indeed, the stock bounced near $171.6 on Monday and revisited that level with more conviction on Tuesday. By Thursday, the rally had reached nearly $179.9 before pulling back.
Similarly, the analysis for TSLA included the $393.0 level as part of its anticipated weekly framework. The stock validated this by closing on Friday just three dollars above that mark.
My point is that these levels give you an edge, defining likely targets as long as the price stays above the central weekly level (for resistance targets) or below it (for support targets).
For the week ahead, this central level will be key for all securities, especially ahead of the FOMC meeting, the publication with the S/R levels for next week can be reached in the link below, it was posted yesterday. Make sure to read it, I described a significant signal that traders and investors must consider for the coming months.
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