Stocks rebounded throughout the month of April. The month ended with the market reaching a natural technical retracement level. May Day not only started the new month, but May may see selling pick up to drive price lower over the weeks ahead.
Former support (demand) often represents new resistance (supply). You can see on my weekly chart of the S&P 500 ETF (SPY), that price backed down after encountering the negative influence of a line of average price movement.
The character of the behavior of market price movement shows sellers regaining the edge.
Don’t be surprised to see the March lows taken out.
As you can see on our daily candlestick chart above, Micron (MU) shares look ready to leave their rally and head south.
The historic panic plunge in oil may grab the headlines, but it’s Tech shares that look terrible.
The struggle is real, as Wall Street darlings like MU fade under the negative influence of a down trend.
We’re watching for a big test of underlying support (demand) in the low-$30s. The negative character of the behavior of price movement is depicted by the appearance of consecutive black candle lines right at technical resistance (supply).
This indicates the likelihood, but not the certainty, of lower prices down the road.
Seeing financial media report the market up sharply this morning, on hope for big Pharma progress in the fight against Covid-19, had me thinking of the great song above by Bruce Springsteen and the E Street Band.
Reports such as that trigger my contrarian senses.
The character of the behavior of market price movement actually has us quite skeptical. Don’t be surprised to see stocks move south.
I view each day’s trading as a struggle between buyers and sellers for the advantage in price direction.
The character of the behavior of market price movement tells us whether a particular day is positive, negative, or indecisive.
Though yesterday’s stock market session closed little changed from Monday, its character was decidedly negative (sharply higher open only to close near the low, producing the largest give-up of gain since 2008). This sets short-term resistance and implies the likelihood of lower prices to come.
The struggle is on now with the Fed desperately printing and pouring money out (inflationary) in an attempt to quell a devastating economic decline (deflationary), spreading like a wildfire, ignited by Covid-19.
We shall see which side prevails. Until proven otherwise by price, bears retain the edge.
UC San Diego’s Geisel Library, h/t sandiegomagazine.com
“You will come to a place where the streets are not marked. Some windows are lighted. But mostly they’re darked. A place you could sprain both your elbow and chin! Do you dare stay out? Do you dare go in? How much can you lose? How much can you win?
And IF you go in, should you turn left or right… or right-and-three-quarters? Or, maybe, not quite? Or go around back and sneak in from behind? Simple it’s not, I’m afraid you will find, for a mind-maker-upper to make up his mind.” — Dr. Seuss, Oh The Places You’ll Go!
“Be patient, keep studying, and be 100% prepared. Later, at the least expected time, when all the news is terrible, winter will ultimately pass and a great new bull market will suddenly spring to life…So get prepared and do your homework. Create your own buy and sell rules that you will constantly use.”
That’s some bear market investing wisdom from William O’Neil.