$SPY TOP 20

OK this will be the most important $SPY chart I have put up all year.

At the close on Friday we saw some damaging weakness in the market and for the first time since March '23, the market closed below the 200 Day MA, only just below but still marking an important statement.

The importance of the 200 Day MA is not related to Elliott Wave Theory, we use EWT as our main theory to find price targets and support/resistance levels, we use the 200 and 50 Day MA to supplement our charts to identify trends. The 200 Day MA is an important trend indicator.....quite simply, if the share price is above the 200 Day MA then the trend is bullish, below the 200 Day MA and the trend is bearish, this is a simple understanding of how important the 200 Day MA is.

So in March, when the market dipped below the 200 Day MA when the US Regional banks collapsed, we were concerned and the economic outlook was bleak, inflation was still out of control and the Fed were still pushing aggressively with higher rates.

The Fed managed to offer a lifeline and support to Regional Banks by securing all deposits, without making it look like they were flooding the market with capital, they succeeded and the market recovered within 2 weeks. Saving the bull market and keeping the trend since Oct' 22 in a impulse (bullish) wave.

So since October '22, we have been in a clear bull market, with the $SPY up 15% since October '22, peaking at 26% in July. This is a very bullish percentage gain and the $QQQ is up 31% since October '22, peaking at 44% in July '23. We also enjoyed this run from March to July, those who joined us from late July onwards, have not been around for the gains.

So where do we stand now?

Like in March '23, there was a quick recovery and we proceeded into Wave 3. This would be the ideal scenario, big earnings are due out this week and the next week and they are strong enough to save the market, as they have done already this year, a strong beat, with modest guidance, should be enough to get us back comfortably above the 200 Day MA.

I have drawn 2 long parallel red lines on the chart, the 'Bounce level' is in between these red lines. $410 is the lower limit, the price absolutely can not go below $410, if it does, then this Wave 4 has infringed on Wave 2 (in Dec '22) and so this violates one of the most important rules of EW Theory, which we all learnt from Lesson 3 uploaded last week.

IF $410 is not held, then the market has officially broken down and we are in correction, the negative to this is that it has clearly came earlier then what we and everyone was expecting, we expected this to happen at the EOY or as economists would say, when the Fed pivots and reduced interest rates, which is historically the cause of a market correction. However, the positive to this would be that we are more than half way through this correction already then....and there is a strong potential to find support at the 0.618 Fib at $390.

My opinion is that we are still in Wave 4, it is certainly extended because of external macro conditions, weighing very heavily on the market right now, but we absolutely need the Mega Caps this week and next week to deliver positive beats on their earnings to get the price above the 200 Day MA and find support there.

This must be said but believe it or not, I do not control the market, I simply make charts based on the information that the charts are telling me and strictly abide by EW Theory, I have explained above why I believed we were in an Impulse wave since October '22 and absolutely nobody and not I doubted this since March '23 when the market ran up. 

There is no denying that the Macro conditions have been influencing the market and the conflict in the Middle East could not have come at a worse time, catalysts like this can influence the market, this has been escalating and even this evening we have heard that China has moved their military ships into the Middle East seas, which is an act that has never been done before by China....this is an invent of global significance and could escalate into something we have not seen in many years, especially when we consider that Russia and Ukraine are still at war.

There is potential to speculate and let our emotions run riot this week, I won't be overreacting to anything, I will give the market a chance to fight and recapture the 200 Day MA and this means giving the earnings reports a chance to work.

We have all seen the S&P 500 seasonality chart by now and this week ahead is showing that it is historically the start of an end of year rally.

If you are not comfortable with the possibilities above, then utilise a Stop Loss on the stocks you have bought but give them enough room so that you allow a small drop.