Based on the following charts, my opinion on this upcoming week is bearish although a short-term correction to the upside is probable so I will stay alert to avoid any short-squeezes.
There are several earnings announcements and a few key economic readings due out this week. I suspect the outlook will remain bleak but the markets are showing some oversold readings, so any good news or even bad news that isn't that bad could direct some short-term consolidation before the next push down. Tuesday, Thursday and Friday look to be more meaningful days in terms of potential market moving news.
I trade the mini Russell futures contracts (TF) so it obviously makes sense to watch what the underlying index is doing. During the last four months a significant triangle pattern formed, which was touched six times before price finally broke out. Similar patterns also formed on the other primary indexes, making this pattern even more substantial in terms of downside potential. Prices on the $RUT are trading below the 200 and 50 day simple moving averages, which further increase the probabilities for more price drops. However, in the near-term, there is potential for a short bounce before the market heads lower, assuming it will. Friday's trade formed a hammer pattern (it is weak in my opinion but the lower shadow is twice the size of the body so it qualifies as a hammer) and RSI is currently showing an oversold reading. RSI is currently reading at a key support area that has been touched several times before short-term rebounds. I'll be watching both the hammer and the RSI on Monday. A close under the hammer's lower shadow negates the hammer pattern and will suggest more price drops in the near-term.
The $VIX is also showing an oversold reading. There is clearly a lot of fear in the market but perhaps too much in the near-term, which is another potential convergence of signals to suggest a short-term correction is near.
The $SPX and $COMPQ also show similar bearish patterns, which confirm the overall market direction for the next few weeks if not months. Unfortunately, if the breakouts from the triangle patterns are valid and the measurement is legit, the market is poised to hit historic lows. This said, the $COMPQ still has two unfilled gaps suggesting again that perhaps a short-term correction is near but then price is likely to fall thereafter.
- Price is trading below the 200 and 50 day SMAs, therefore, bears are currently in control.
- I am planning to enter the week with a short bias but of course the daily trend could reverse in the short-term but even if it does, I will enter long positions with much caution.
- A short-term correction during the next week or so is likely based on current technical readings.
- Do not be surprised if the markets continue to dip to and then beyond historic lows but hopefully a bottom will be found sooner than later.