Santa’s Stock Market Warning: A 28% Drop Ahead?
The Dataman
Santa has a stock market crash to deliver!
Merry Christmas traders, are you ready for another 28% decline in the stock market?
In today’s Christmas report, we are dissecting the SPY (S&P500) chart to get an understanding of what the start of 2023 has in store for us, and it does not look pretty.
The S&P500 price action is unfolding to the T of the previous BEAR MARKET RALLIES.
Unfortunately, after the next corrective rally on the SPY things could get very UGLY in the financial markets.
Let’s dive into this technical update on the US stock market.
SPY Daily Chart:
Firstly, we are taking a look at the 1-day chart of the SPY.
The previous BEAR MARKET RALLIES have moved into the 61% FIB retracement level, which also coincides with the negative trend line resistance, before rolling over to breach the previous swing low, known as a BoS (Break of Structure). This cycle has repeated itself two times successfully, and a third time is potentially underway.
Following the initial breakdown from the rising trend line support, the SPY has a counter-trend rally into the GOLDEN POCKET (38% – 61% FIB retracement zone) – which is known as wave (ii).
The GOLDEN POCKET is widely used across the market for either long or short entry points.
SPY 1-Hour Chart
Using the shorter-term time frame, we can see the SPY has potentially completed its first initial 5-wave decline from the swing high of 413, to complete wave (i). This is the same structure that occurred from the swing high of 431 and the move down towards 389 on the 6th of September 2022.
After a 5-wave decline, the market should counter-trend in the opposite direction to form wave (ii). As mentioned above, the GOLDEN POCKET will be our target zone for the counter-trend rally next week.
Once this level is reached, we must take a look at the underlying structure. If the structure of the SPY is in THREE waves, we can assume it is a counter-trend labelled a-b-c.
Our upside target for the counter-trend rally is between 390-400, which is the GOLDEN POCKET. After reaching this area, price action should begin its decline to BREACH the market low of 350.
SPY 2-Day Chart
Based on the previous declines and using the FIB extension tool, the next maximum downside target can be found at the 276 support level, which would result in another -28% shaved from the S&P500.
A move into this area would be the 1.618% FIB extension of the most recent impulsive move lower from 431-349. The 1.618% FIB extension level was successfully reached during the previous market downturn.
Is the same scenario setting up here right now?
The technicals are looking very similar and very bearish. We must trade what we see.
We have a great RISK-V-REWARD short trade setting up here on the S&P500.
I must also stress, our BEARISH INVALIDATION level is set at 410. A break above this level will completely invalidate our bearish Elliott wave analysis and we will be back to the drawing board.
As always I will keep you all posted in our Trading Floor service and telegram over the coming days.
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If you want to learn how to take advantage of this analysis you can book a call to speak with a trading specialist below.
Conclusion:
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Good luck in the markets.
Tony Fernandez
Head Market Analyst
