Words of Wisdom from Yoda
S&P500 Index Daily, 8-mth
On Monday 25 Apr 2022 12.03pm, I emailed Clients my latest post titled 'Allow the Correction to complete, we must!'.
Below is the full transcript for your perusal:
'Dear Clients
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Hope you have been well! I'll be keeping today's message short & sweet!
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On 22 Mar 2022 1.33pm, I said in my writeup:
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'..Using my Thom's Bollinger Bands (BB) strategy, the current set up in SPX (S&P500 Index) price action has bullish connotations. The upcoming test that you should really look out for is how price action will behave when it eases off from the current rally to test the Bollinger Bands (BB) midpoint line.
If the BB midpoint line (now at 4300 but it is a moving line) can defend (support) the resuming downward price action and then subsequently sees price action turning back up to a new local high, we might just have a bottom in place! Next few weeks will be important but let's watch it step by step..'
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Unfortunately, over the past one month, we can see that as SPX price action eases off from the 29 March rally high (see attached Chart), price action only held up above the BB midpt line (bold dark purple line on attached Chart) for just 3 days before succumbing and breaking down below it to touch the lower segment of the Bollinger Bands.
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Following that, the next test was that price action was NOT able to claw back above the BB midpoint line and thereafter got turned down hard by the same BB midpt line.
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With these developments in place, the line of least resistance would now appear to be down and the 24 Feb 2022 low @ SPX 4115 would likely be tested again.
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The other high probability downside target would be around the SPX 4000 - 3934 range (blue rectangle in Chart). Said support range have been communicated to Clients in my previous writeups so it should not come as a surprise.
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As of last Friday's close (22 Apr 2022) at 4272, basically the S&P500 Index has gone nowhere for the past 8 months.
In the backdrop of rising bond yields, the US market is currently experiencing a painful transition from the sexy Growth/Tech-led stockmarket to the boring Value-led stockmarket. The lofty valuations that once Growth/Tech commands are now being questioned/challenged as rates rise. Hindsight is 20/20 but it turns out that Covid pandemic was the event catalyst to allow the already lofty Tech valuations to attain its zenith and thereafter it has been downhill from there.
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The S&P500 Index has a combination of both tech & value component stocks which as a result has a more nuanced correction as compared to the Nasdaq which is tech-heavy. Again, it is in my humble opinion that we must allow the current correction to complete before the bull market resumes. Follow me closely as I continue to track the S&P500 Index development.
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Live Long & Trade Well!
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Thank you & regards
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Thomas Ng, CMT
Principal Trading Representative 首席股票经纪
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Chart source: tradingview
Image source: www.fatherly.com/play/yoda-quotes-that-teach-kids-resilience'