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Week of August 21st, 2023
Hard pullback, SPX now down 250pts, what's next?
In our previous newsletter, I gave 4443 on $SPX as the pivot for this week and mentioned that if the bears managed to hold this level, we could see continued pullback movement towards 4393. Bears lost this level on Monday briefly but quickly recovered it and have pushed lower lows each day. I then had to send an intraweek update at 4404 to give more levels as there was acceleration in the move, where I mentioned that if the July low of 4389 was taken out, we can go as low as 4232 next as the uptrend had been invalidated. We then sold off to a low of 4335 before a small oversold bounce back to 4381 to complete a retracement of the wedge we broke down from.
I’ve mentioned a few times that the bull’s biggest enemy is not the bear, it’s the other bulls who see their unrealized gains start to dwindle and then step on each other’s toes on the way out. In this landscape, the bears have adeptly capitalized on the situation. Just as the upward trajectory lacked substantial declines, the current downward trend has similarly lacked significant recoveries, emphasizing the bears' prevailing control.
Key Levels: 4443 will be the key level for the week.
Bearish Trajectory: If bears hold below 4443 then pullback continues towards backtest zone at 4406 and 4393.
The range for the week was 4490 to 4335 and we closed at 4369. The weekly candle is a decisive break of the uptrend.
It’s important to note that Friday we gapped down creating a lower low however we bounced in the session up to the channel retracement and then rejected into the close. This fulfills the need of a retest after breakdown, so technically speaking we can continue lower next week if we don’t re-enter the channel.
We have moved down from “extreme greed” into “neutral.” The markets have effectively completed a “reset.” However, this is not a standard pullback in my opinion, as we have officially invalidated the uptrend and put in a lower low. SPX has now dropped nearly 6% from its recent highs.
AAII survey continues to maintain high levels of bullish sentiment despite the past 3 weeks of selling.
Here is the economic calendar for next week, we are likely to have some big volatility on Friday:
For this upcoming week I will be watching the following setups and levels:
There was a decisive breakdown on the daily this week from the downtrending channel. This breakdown was retested and prior support is now resistance.
The weekly chart shows a decisive breakdown from the bearish rising wedge.
The 8ema has crossed under the 50sma.
Key Levels: 4434 will be the key level for the week for direction.
Note that between 4380-4434 can be a choppy zone.
Bullish Trajectory: If bulls reclaim 4434, we can retest the 50sma at 4452 and setup a squeeze for a retest of 4514. If 4514 is taken out, we will likely see a continued large squeeze to fill the gap at 4567.
Bearish Trajectory: If bears hold below 4434 we can retest the recent lows at 4335 and if they break we can target 4284 and 4232. if 4232 falls the next target is the 200sma at 4129 and then the ascending triangle original breakout at 4094. Yes, we can get that low in one week if there is acceleration to the downside.
Note: BEARS ARE IN CONTROL UNLESS 4434 IS RECLAIMED. With the 8ema just crossed under the 50sma, if there is not a large rally this week, the downward pressure can continue towards the gap at 4232 and the 200sma at 4129. It is also possible that we “retest” the wedge breakdown and then fail - but one level at a time. Below i’ve put some potential paths so you can see the important zones.
Continue to watch - 8/50 crossover and broken channel. If 420 is lost again it can retest 405 area (the 1T valuation tag area). If that falls can see waterfall to 380 and 360.
Bulls would need to take out the 480 area for a shot at 500-525. I think we ran out of banks and analysts to upgrade NVDA ahead of ER, which is not bullish for me.
Same as SPX. Breakdown from rising wedge on weekly, + breakdown from downtrending channel on daily and retest was completed and failed on first attempt. 8ema has crossed under the 50sma.
There is chop expected if bulls manage to reclaim the channel (see purple lines in chart).
Key level for the week is 436. This is the absolute minimum bulls need to hold in order to stall/pause further breakdown. For a reversal with legs, bulls need over 444 for a squeeze back to 450+
Bull case: Above 436 bull can setup to retest the 8ema at 441.80. If taken out then we have the 50sma test at 444.15 which must clear for a large squeeze into 450-451.94+.
Bear case: Below 436 can target 433 then 429.79. If 429.79 falls target 424 and possibly the unfilled gap at 422.92
Outlined bull & bear case paths for next week below.
Key level for the week: 362
Bull case: Above 362 can retest 8ema at 364.37 and then 365.98. If 365.98 clears would target a 50sma backtest to 370.08. If 50sma is taken out this can move to 374-375 area where bulls need to be careful of a potential head & shoulders
Bear case : Below 362 bears in full control and can retest Friday lows at 354.71 which if taken out would support a move to 349.71. If 349.71 falls it will be a fast drop to 340-345.
Note: 8ema has crossed below the 50sma and we have broken a wedge to the downside. There has NOT been a retest of it yet, so I would look for that early next week and then decide if to reshort or long.
Key level: 221
Bull case: Above 221 can retest 8ema at 230.99 where there will be significant resistance to overcome
Bear case: Below 221 can see continued pressure down into 200sma at 196.
Note: There is a potential IHS setting up on the monthly and the monthly is giving an oversold / buy signal. Need to monitor as even if bounce comes to 230, it will be a significant level to clear. If 230 becomes support, then we have a stronger case for the upside back to 258 area.
Weekly breakout as long as above 225 to targets 240 and 267.51.
Under pressure from the 2B top that has now reached its measured move. If 200sma holds and we start to break out of this compression, can see rapid upside. Needs to see above 50sma (black line) for continuation.
Breakout so far has failed. Need to see over $94 again to become interested again.
Breakout is in progress. 8ema has crossed over the 50sma. The 50sma continues to curl up and is headed to converge with the 200sma which will decide the next large move. This is likely to continue higher as long as it holds $84 to target $90 and $94
Watching 50sma retest Early in the week there was some $85C flow and this one tried to retest and breakout of the wedge but failed. A rising wedge is not typically a bullish pattern. I need to see this over $85 to get bullish again for 100+.
Structurally damaged for the bulls. Can't get bullish on this unless over $80. It has been in this falling wedge which is usually bullish, however we have broken it to the downside and the 8ema has crossed under the 50sma. For upside we need to see the 8ema back above the 50sma and this wedge to breakout from the upside portion.
MSFT is one of the market leaders, leading the sell off before the rest. If this does not reclaim 320.51 next week, we are headed lower into 297, and possibly gap fill and 200sma area around. 284.
Bulls need to reclaim 320.51 asap to setup a 50sma retest at 334.82.
Multiple bearish patterns at play. AAPL is the market. Market cannot go up without AAPL.
Bullish channel broken.
Rising wedge broken to the downside.
Falling wedge broken to the downside.
Gap filled but no initial bounce there, it kept sinking.
Bulls must reclaim 178 ASAP for a move back to 182.94 and 187.13.
If we do not get over 178, we can see continued pressure to 170.36 and then the 200sma at 161.47
Have a wonderful weekend!
Wishing you a successful and profitable trading week ahead!
Best regards, Jovan
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