The markets staged the biggest rally in history the day after Christmas — a whopping 1086 pts! Does a historic rally mean the bottom is in? Below are key levels and commentary on the major indices.
Still, a 5% index rally is monstrous — you compare the size of this daily green candle with every other candle in 2017 – and you can see the size of the move easily engulfing weeks and months of activity in just a 12-24 hour period.
You might think after such a big move, it’s likely the next day would be a red day — but it actually wasn’t. It dipped, but then staged yet another super quick rally in the last 2 hours of the trading day — in fact, that green candle was EVEN bigger than the hourly candle from the first historic day.
So how far have we rallied from the lows?
Across S&P, Nasdaq, and Russell, we have now retraced 50% of the multi day drop as shown in the below Fib Retrace charts.
★ Goldman Sachs shaved its growth forecast for the first half of next year, from 2.4 percent to 2 percent, and said growth would slow to a virtual crawl below 2 percent in the second half.
★ Nevertheless, the bank declared it was “still not particularly worried about a recession.”
Turns out the 2355 ES green line drawn several weeks ago became near significance – as the market dipped below that area and then reversed. It closed the day before Christmas – in what was the worst Christmas Eve trading ever right below that level. Then it also opened the day after Christmas right at that level.
The only time spent below that level was really overnight – during non-market hours.
At this point, we have the 50% retrace coming in around 2507 ES — so far we went up towards 2521 ES. This is assuming that we draw the Feb retracement from the top of the multi red candle day drop from 2689ES, rather than the 2815 ES region.
If 2520 ES holds, 5th wave down of this wave 3 would mean end of year selling after this historic 3 day rally.
If you invert the below diagram such that it’s 1-2-3-4-5 pointing upwards — then it could look like the pattern that has formed above. If this pattern plays out, then the market should move back to the beginning of the diagonal formation — somewhere between the “2” label and the 2355 ES region.
The combination of the 50% retrace and a recognizable 5-wave upward diagonal pattern into that 50% retrace 2507 ES-2520 ES zone — could be significant.
The Nasdaq ALSO posted a 50% retrace of the multi red day down leg — rallying in just 2 and a half candles – what took the market 7 full red candle days.
People say the market drops faster than it rises. But in Bear markets (which this has become) — the rallies are even faster than the drops.
The Dow also staged a 50% retrace at around 23165 YM – peaking above, but closing below that level by end of day.
The VIX doesn’t seem to be spiking strong enough to indicate a bottom is in just yet. So I’m inclined to believe that we should still spike higher — whether it gets above the recent high of 36, don’t know — but considering we are in bear market territory – and we actually saw higher VIX levels back in February — something tells me it’s not over yet.
CNBC is not the best source for info — but it’s good for just being aware of what news headlines are being disseminated into the public.
Here are 2 noteworthy video clips that I think are worthy of your attention.
Carter Worth from CNBC is making some interesting factual observations here — whether the bottom is in or not, who knows. But on average, it takes many years to recover the type of damage we’ve seen so far. So while it’s hard to say how much further we could go, if any, I think it’s important to note that history says that the upside at least in the immediate next few months is limited.
This guy says a key level to note is the 2525 SPX – which is somehwat close to the 2525 ES futures level. Coincidentallyl, the market made a high around 2520 ES on Friday — and it’s not too far from the 2507 ES 50% retrace noted in the above charts.
So I think this level could be worth paying attention to.
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