The Grinch who Stole the Christmas Rally
Following the Fed's announcement to double it's taper rate & hinted at interest rates, the market bounced, in a timely fashion to falsely signal the Santa Rally is on. But let's take a closer look, as it appears the chart shows more of a fakeout up and more movement to the downside on the horizon. Key points of analysis are numbered on the chart:
1) Expanding triangle has begun forming since early 2021 and the Dow has been caught in a range between 33-36K. This is a major expanding triangle, which is the first bad sign for the market as expanding triangles tend to be topping/bottoming patterns.
2,3,4) These are related to one another so we will branch under one point of discussion. First, it is interesting to point out that each of the turns to the downside occurred almost exactly 3 months apart and the first two dips followed FOMC meetings. (2) First dip in hits its low 6/18. (3) Second dip hits its low on 9/20. (4) And take note of gap left open after today's bounce, week ends on the 17th and we kick off the week on 12/20 next week. I'd expect further correction despite the bounce today. If there were to be any chance for a reversal after correction in time for the "Christmas Rally" it would probably cause a pretty sharp downturn before and even sharper move upward going into 2022.
Regardless, I'd expect the first bounce out of the 33-36K range to be downward, which will either lead to a consolidation followed by further correction, or a sharp reversal upward to new highs.
5&6) On the MACD, each of the last 3 troughs have shown stronger selling action, signaled by lower troughs on the singal line and deeper red bars on the lower end of the oscillator. 6 showing a stronger push down than 5.
9)The scenario I think is most likely is first a sharper drop, preceded by some sideways actions to end the year. With Christmas on a Saturday, The Market could be in for a very rude awakening the Monday following, as the holiday spirit may get sucked right out of it. Early 2022 we see some consolidation, followed by a lower low around March, that goes in to fill the major gap at 28K (9). I think this would also be best case over the long-term for the market, as it has seen near parabolic gains since the crash in March 2020. Without a major correction to this super bullish market, we'd be setting up a market primed an even larger, and more devasting, fall.
This may not be the most holiday friendly market, but it is a gift to traders and investors over the long term. Grinch will have his Christmas, but perhaps a Christmas in July for 2002 awaits!
Happy Holidays!
1) Expanding triangle has begun forming since early 2021 and the Dow has been caught in a range between 33-36K. This is a major expanding triangle, which is the first bad sign for the market as expanding triangles tend to be topping/bottoming patterns.
2,3,4) These are related to one another so we will branch under one point of discussion. First, it is interesting to point out that each of the turns to the downside occurred almost exactly 3 months apart and the first two dips followed FOMC meetings. (2) First dip in hits its low 6/18. (3) Second dip hits its low on 9/20. (4) And take note of gap left open after today's bounce, week ends on the 17th and we kick off the week on 12/20 next week. I'd expect further correction despite the bounce today. If there were to be any chance for a reversal after correction in time for the "Christmas Rally" it would probably cause a pretty sharp downturn before and even sharper move upward going into 2022.
Regardless, I'd expect the first bounce out of the 33-36K range to be downward, which will either lead to a consolidation followed by further correction, or a sharp reversal upward to new highs.
5&6) On the MACD, each of the last 3 troughs have shown stronger selling action, signaled by lower troughs on the singal line and deeper red bars on the lower end of the oscillator. 6 showing a stronger push down than 5.
9)The scenario I think is most likely is first a sharper drop, preceded by some sideways actions to end the year. With Christmas on a Saturday, The Market could be in for a very rude awakening the Monday following, as the holiday spirit may get sucked right out of it. Early 2022 we see some consolidation, followed by a lower low around March, that goes in to fill the major gap at 28K (9). I think this would also be best case over the long-term for the market, as it has seen near parabolic gains since the crash in March 2020. Without a major correction to this super bullish market, we'd be setting up a market primed an even larger, and more devasting, fall.
This may not be the most holiday friendly market, but it is a gift to traders and investors over the long term. Grinch will have his Christmas, but perhaps a Christmas in July for 2002 awaits!
Happy Holidays!
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