Are You Ready For The Next Bull Market?
The market found a higher low on Monday. We reviewed SPY, QQQ, DIA, IWM, MDY, GLD, SLV, and BRK.B.
Summary
The market opened lower on Monday and formed a higher low.
The NASDAQ 100, S&P 500, Dow Jones Industrial Average, and S&P MidCap 400 are showing strength.
Gold showed weakness but stayed in the hold zone.
Silver dipped a little, but it is still in the buy zone.
Berkshire Hathaway gave a buy opportunity on Monday and Tuesday before rallying back into the hold zone.
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Market Review
Let's review what happened this week in the stock market.
S&P 500 · SPY
Last week we drew, last week we drew an upward trend line and a downward trend line to see what the market was telling us.
We believed that by the end of this past week or early next week, we would see some kind of reaction from the market letting us know where it stood.
On Monday, it fell below the upward trend line, almost indicating that the market wanted to go further down to retest the last low.
Then on Tuesday and the rest of the week, the market continued going higher.
By Friday, it broke above the downward trend line indicating that the market wanted to move higher.
We did draw a upward trend line using the last lows last week, but they weren't definitive back then.
On Monday, the market fell below and recovered.
It set a new low.
It is a higher low.
If we redraw the upward trend line, we see the intersection of the upward and downward trend lines further out.
And on Thursday, it ended slightly above the upward trend line.
And on Friday, opened at the upward trend line and finished above.
It is now slightly above the previous low before the market sell off.
Now that we have a higher low.
We expect to see the market go up a little bit or maybe go sideways and then fall below a bit.
And what we would like to see is if the price does fall, to form a higher low than the one that we just set on Monday.
As we get higher new lows, this is a sign of strength that the market wants to go bullish.
In addition to seeing higher new lows, we want to see the price stay above the previous low from March 13th.
The price is still under the 50-day moving average.
We want to see the price get above that.
The price is still below the 200-day moving average.
We also want to see that.
The parabolic SAR dot is below the price and it has been there for over two weeks now, which is a good sign.
On the weekly chart, the parabolic SAR dot is still above the price.
The closer the dot gets to the current price means, the greater the chance that the price will start having more upward momentum.
Again, just to recap what parabolic SAR dot could be used for.
When the dot is above the price, it acts as resistance.
And when the dot is below the price, it acts as support.
On the weekly chart, the price has been in the Ichimoku green cloud for a few weeks now.
We want to see the price get above the cloud as well.
On the daily, the price is still below the cloud.
What I'm anticipating happening is the price will move upward slash sideways for a while, kind of at a 30-degree angle and try to cross above the Ichimoku cloud on this really thin part right here.
That would be the least resistance.
The thicker the cloud, the harder the stock has to move and work to get out of the cloud.
The cloud right above it is much thinner than the one to the right of it, so that could work as well.
My conclusion for the S&P 500, if the price can stay above the previous low from May 13th and stay above there for a few days, that's a very strong sign.
And since we set a new higher low, the likelihood of another bull run forming right now is very a medium to very high likelihood.
If you didn't buy when the market bounced off the low on April 7th or if you didn't buy this Monday, there's still plenty of chance to get in, assuming the price does stay above the downward trend line, but more than likely and better if the price stays above the last low from March 13th.
NASDAQ 100 · QQQ
Similar to what we discussed in the S&P 500, we had drawn the upward and downward trend lines and on Monday it opened below the downward trend line.
Since then, starting Wednesday, the price recovered and has been straddling the downward trend line and has broken above the downward trend line as well.
This is a very good sign of strength and it closed definitively above the last low of March 13th.
Since on Monday the price did form a higher low and we redraw the upward trend line.
In this updated wedge, the price never left the downward trend line.
It stayed inside the wedge of the upward and downward trend line and broke above it on Thursday.
This is a very good sign of strength.
The price is approaching the 50-day moving average.
It's very close.
The 200-day moving average is a little further away.
The Parabolic SAR dot is still below and has been below the price for a couple weeks now.
On the weekly chart, the Parabolic SAR dot is still above the current price, but it's much closer than it was for the S&P 500.
The price has poked its head above the Ichimoku Cloud on the weekly chart.
On the daily chart, it looks like the price is starting to gravitate upward sideways, toward the thinner parts of the Ichimoku Cloud.
In summary, the NASDAQ 100 is looking much stronger than the S&P 500.
The stronger the NASDAQ 100 looks, the more likely the market is bullish because the growth names tend to move the best when the market is in a bull market.
If we see the price hold above the last low of March 13th for a couple more days, and gets above the 50-day moving average, this is a really good sign of strength.
Dow Jones Industrial Average · DIA
The price is still inside the wedge.
It has not broken above the last low of March 13th.
It did, however, set a new higher low on Monday.
The Dow Jones is typically a slower moving index.
It's more defensive than the S&P and the NASDAQ.
This one is going to move more slowly.
We probably won't see much price action until maybe early May to mid-May based on where the trend lines are intersecting.
For more conservative investors, as long as the price continues moving upward and stays inside these trend lines, inside the wedge, it's still looking pretty good.
We want to see the price get above the last low from March 13th based on where the 50-day moving average is sloping.
It looks like it could intersect the upward trend line, the downward trend line, in mid-May.
We want to see the price also get above the 50-day moving average.
The price is way below the 200-day moving average.
That will be the next hurdle to clear.
As long as it can get above the 50-day moving average, that should be a good sign.
The Parabolic SAR dot continues to be under the price, which is a good sign.
This means that there's support there.
Based on the weekly chart, the Parabolic SAR dot is above the price.
This means there's still quite a ways to go before this one looks more bullish.
On the weekly, the price is still inside the Ichimoku cloud, about halfway through it.
And on the daily, it is pretty far away from the cloud.
Based on the angle of where the price is moving, it will probably try to get through it on the thinner part of the cloud.
S&P Mid-Cap 400 · MDY
If we look at the downward and upward trend lines from last week's video, we see the price stayed below the upward trend line, but stayed really closely to it.
And now that we know we set a new higher low on Monday, we redraw the upward trend line and we see the price has stayed within the wedge and is trying to get above the last low from March 13th.
This is a good sign for the mid-caps.
It has been in a very long downward trend, even since before this year.
Hopefully we start seeing these recover.
What we expect to happen in the coming weeks for good price action, the price should get above and stay above the last low from March 13th.
Since the 50-day moving average line is getting close, we would like to see the price get above it and stay above it.
The 200-day moving average is pretty far away.
We don't expect to see the price getting above the 200-day for a long while.
The Parabolic SAR dot has been under the price for over a week now, which is good.
On the weekly chart, the Parabolic SAR dot is very close to the price.
I wouldn't be surprised if this coming week or the following one, the price gets above the Parabolic SAR dot moving it below.
Once the Parabolic Sardot is below the price, this acts as support, meaning there's a higher likelihood that the price will continue moving upward.
The price is still below or at the very bottom of the Ichimoku Cloud on the weekly chart.
It's not close to it on the daily chart, based on the direction I expect to see it try to get through the cloud on the thinner part.
In conclusion, the mid-caps are looking pretty good because:
They are still inside the wedge.
They still have a little more work to do
It is getting close to the last low of March 13th
It is possibly getting above the 50-day moving average.
If these happen, it’ll start breaking the downtrend since December.
Russell 2000 · IWM
Based on the upward and downward trend lines from last week, very similar story as the rest of them.
This one is like the mid-caps.
The price did straddle the bottom of the upward trend line.
And if we redraw the upward trend line based on Monday's new higher low, we see the price inside the wedge and it's trying to get out of it.
It is close to the low from March 13th.
The 50-day moving average line is getting close.
The 200-day moving average is still pretty far away.
The parabolic SAR dot is below the price, which is good.
On the weekly chart, the dot is very close to the price, so very similar to the mid-caps.
When the price gets above the parabolic SAR dot, the dot will move below the price, acting as support and giving us more likelihood of upward movement.
The price is actually below the Ichimoku cloud, and if it keeps moving in the current price direction, it'll stay below it for a while on the weekly chart.
On the daily chart, it looks like based on the current price direction, it will try to get through the cloud on the thinner part.
In conclusion, what we need to see happen is:
The price get above the downward trend line.
Get above the low from March 13th.
Get above the 50-day moving average.
If those three things happen, then the small caps are showing a change of behavior and breaking the downward trend since last year.
Gold · GLD
Last week we mentioned that the price had entered the hold zone.
If you didn't buy in the buy zone or even the chase zone, we advised to stay away from the hold zone.
If you buy in the hold zone, you have a chance of the price dropping on you because it's moved so high.
On Tuesday, the price fell with a big red candle and ended lower in the week.
It started with a gap up and fell below.
This is just a reminder that once you're in the hold zone, it could reverse and fall back down.
If the price has moved too fast, which it did, it needs time to absorb the gains.
Sometimes the price will fall below because some investors see the price is very high and want to lock in gains.
If enough people sell, then the price starts moving downward.
Again, there are no new buy opportunities right now for gold.
It's best to wait until there's a new buy opportunity.
Silver · SLV
The price is still in the buy zone.
It did fall a bit.
It is holding the 50-day moving average.
The price is on the lower end of the buy zone.
So if you have not bought yet, I would recommend waiting a little bit to see if the price starts going sideways or starts to recover.
If the price falls below the 50-day moving average, I would wait just a little bit to make sure it can recover and get right back above.
It's still looking pretty good though.
The 50-day moving average line is still moving upward and the price is still above it.
The 200-day moving average is pretty far off and still sloping upward, showing a good long-term outlook.
The parabolic SAR dot is below the price, is still a ways away, which is good.
The closer the dot gets to the price, the more likely that the price and the SAR dot will change directions.
On the weekly chart, the peak of last week is getting close to the SAR dot.
It's possible that the price will have a good move and reach the dot.
Where it will be next week on the weekly chart, or the silver price will go sideways just a little bit or move up slowly for the next few weeks.
This gives the dot a chance to fall further down.
Another way to think about buying in the buy zone is to wait till the price reaches the SAR dot and the dot falls below the price.
This means that the parabolic SAR dot, is acting as support and now it's time to buy.
Berkshire Hathaway · BRK.B
Last week we mentioned the price was still in the hold zone, but now it’s near the bottom of it.
And we identified that since the price was still below the last high
For more aggressive investors, if you saw a bounce as an opportunity to buy, you could.
For those of you that did that, it worked out well because the price fell below the hold zone into the chase zone on Monday and then it bounced off the 50-day moving average.
Since the chase zone is a valid buy and the bounce on Tuesday off the 50-day is also another valid buy signal.
If you bought on either of those two days, you now have a profit because it went back up into the hold zone.
For those of you that are holding, it's still prudent to hold.
The price is still moving upward.
Those of you that have not bought, I would advise against buying because it is in the hold zone, not in a buy or chase zone.
I used turboscribe.ai to create the transcription below and did some editing.
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Terminology
Buy zone: The optimal price to buy. Investors would get the best long term gains in this zone.
Hold zone: The price is above the buy zone. Investors could continue to dollar-cost average (DCA) in this zone, but risk less optimal long term gains.
Warning zone: The price has lost momentum and is below the 50-day moving average. Investors should consider whether they feel comfortable holding or planning an exit.
Danger zone: The price has lost support and the potential for lower prices is much higher. Investors could hold for the long term as long as the 50-day and 200-day moving averages are not sloping downward. Ideally investors should consider exiting and buying again when the price has gained support and momentum.
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Disclaimer: The author is not a financial advisor. The information provided herein is not financial advice and should not be construed as such. This content is intended solely for educational purposes. The author will not be held liable if you decide to used this material as a basis for any financial decision-making. Investing involves risk, including the potential loss of your invested capital. Only invest what you are willing and able to lose.