The Market Pushed The Bears Back: Is It Time To Buy At Discounted Prices?
The market found support on Monday and rallied the rest of the week.
Summary
The NASDAQ 100, S&P 500, Dow Jones Industrial Average, Russell 200 and S&P Mid-Cap 400 held support on Monday and continued moving up during the week.
Gold and Bershire Hathaway gave us a short window to buy before it took off again.
Silver is giving us a second chance to buy inside the hold zone.
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Market Review
I used turboscribe.ai to create the transcription below and did some slight editing.
Let's review what happened last week.
S&P 500 · SPY · VOO
On Monday, the market fell off more than it did previous three days of last week, yet it found support.
It opened low and it fell lower, but it rallied up, so it bounced up above support.
Then on the following day, on Tuesday, the market capped up a little and then it fell down.
At the beginning of Tuesday in the morning, we shared a post about buying the bounce after the dips.
We shared this was an opportunity on Tuesday to buy because the market found support and it bounced up on Monday and on Tuesday.
Let's explain this on the chart.
On Thursday of last week, the market capped down.
On Friday, the market capped down.
And then on Monday morning, you see here of the opening price, it opened on a gap down, but then it bounced up and it tried to exceed the high of Friday.
And then on Tuesday morning, the top here of the red candle bar shows the open and it gapped up, not a gap up, but it opened up.
And that is a sign that the market is trying to recover.
That's why I shared a post about buying the bounce after the dip.
Tuesday did finish lower within the range of the green candle of Monday.
On Wednesday, the market did start off lower than the close.
But as you may have been aware, the tariffs were put on a hold and the market rallied significantly higher than the open on Tuesday.
On Thursday, the market opened lower about halfway through the price range of the Wednesday move.
Then on early Thursday morning, we shared another post called buying the dip after the bounce.
We have shown throughout many of the charts we have reviewed at the PIMM Trader how when a stock price moves up rapidly, could be on earnings, could be on news, it could be over a week, but there's a really sharp move within a very short time.
What tends to happen is it'll find resistance or there's the number of buyers are kind of run out and there's people that are holding that have been looking for an opportunity to sell.
Then the price dips.
This can present a buying opportunity.
The majority of time I have noticed it will drop a little bit, hold a price, and then start rallying up.
Then on Friday, we had a good finish.
It finished higher than the Thursday price.
Overall on the week, we started very low and finished higher.
On the weekly chart, there's a lot of work to be done.
We see the 50-day moving average or in this view the 10-week moving average is still sloping down significantly.
We undercut the lows of January.
We've undercut the lows of August of last year and we've undercut the lows of April of last year.
The price seems to have found support at the high of December of 2023. Although this was a good week, there's still a lot of work to be done.
Like I mentioned in the post when reviewing the chart in mid-March, I mentioned that if the price falls below the support line, we will see more downside and this is what happened.
Wednesday on the big rally, the price found resistance at the last low.
Since we are officially entered bear market territory with the sell-off on Thursday, Friday, and Monday, we need to be cautious that the price does not fall below this new support line.
If it does, we can see potentially more downside.
From my observations, the market tends to have at least three counter-trend rallies before the price starts to recover and the market starts showing more bullish momentum.
So far we have one counter-trend rally.
This week's could potentially be a counter-trend rally.
There's some work to be done.
We want to see the price get above the last low.
We want to see the price get above the 50-day moving average.
We want to see the price get above the 200-day moving average.
We want the 200-day moving average not to slope downward.
And we want to see the 50-day moving average start to flatten out instead of curving down and start to slope upward.
And of course we do not want to see the price fall below this recent support line.
NASDAQ 100 · QQQ
We have similar behavior here.
Price found support on Monday.
We had the same rallies and bounces and dips on the days that the S&P had them.
We are seeing the price find resistance at the last support line.
We're still seeing the 50-day moving average moving downward.
The 200-day is still relatively flat but is showing a slight curve down.
So the recommendations and observations shared for the S&P 500 also apply to the NASDAQ 100.
Dow Jones Industrial Average · DIA
Again very same story.
We're seeing very much significant behavior across these three major indices.
Now let's review the Russell 2000.
These are the small caps.
This one has been in a downtrend since December of last year and is showing different behavior than the three major indices.
We kind of see one counter trend rally that took about a month that ended in early February.
Price fell and had a very short counter trend rally that ended in late March.
And now the price has fallen sharply like the other indices and had very similar price moves but not as strong.
Given the magnitude of this price change I would not quite call it a counter trend rally just yet.
This one is an avoid if you're not in it. If you are in it we may have found a support line.
This one has way more work to be done.
As you see the last low, the last support line, the price never even got close like it did with the other indices.
The 50-day moving average has been curving down for a while now.
Fortunately the 200-day is still somewhat flat but looks like it's starting to curve down.
We want to see the price get above the last low.
We want to see the price get above the 200-day.
We want to see the price get above the 50-day and the line to start flattening out and curve upward.
These will be the signs that the small caps are ready to have bullish behavior and get out of this bear market downtrend.
S&P Mid-Cap 400 · MDY
The S&P mid-cap 400 showed much more strength than the small caps.
The rally on Wednesday did get closer to the last support line.
Unfortunately it has been in a downtrend since December like the mid-caps.
This one has the same recommendations and observations as as the small caps yet this one tends to show a little more potential because the price moves were stronger than the small caps.
Gold · GLD
Gold has been very strong.
It gave us an opportunity to buy at the bottom of the chase zone on Monday.
Tuesday it gave us another chance because it stayed inside the bar of Monday and if we didn't buy on those days Wednesday it took off.
Thursday didn't even have a dip and Friday it gapped up so I had two three gap ups in a row after Monday and Tuesday.
That was the last chance to buy.
Now it's in the hold zone.
The hold zone is above the chase zone.
Hold is an avoid to buy because the buy zone is the most optimal time to buy.
The chase zone is your last chance to hold zone.
It's overextended.
Silver · SLV
Silver has not been as strong as gold yet it has given us an opportunity.
It sold off hard like gold but on Wednesday, Thursday and Friday had really strong moving price days.
The price is still below the buy zone which gives us a chance to buy unlike gold where we had a very small window.
Silver we still have opportunity.
It was looking strong within the buy zone before the sell-off.
Now we may have a second chance to buy at the optimal buy zone price.
Aggressive investors may choose to buy already.
That's really on your risk tolerance.
For an aggressive investor when the went above and stayed above the 200 day and gapped up the next day an aggressive investor would see that as a great opportunity to get in.
More conservative investors will wait for the 50 day.
Berkshire Hathaway · BRK.B
Berkshire Hathaway was really strong.
It was the last of these tickers that I review that fell. It only fell hard on red candle on Friday.
On Monday it fell hard too but it rallied and almost closed the gap.
The thin part of the candle did close the gap but the thick part did not.
This gave us an opportunity to get in on Tuesday, Wednesday, Thursday.
Friday was the last chance since it opened below the top of the chase zone but it ended above it.
Just like gold if you didn't catch it I would recommend waiting until the next buy opportunity because the hold zone it tends to be extended.
For more aggressive investors you may see the top, the last high and the current price as your gap or your price window to get in.
That's it for this week.
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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.