Jump to content

Staying Bearish on Stocks: Top Trading Opportunities


Recommended Posts

Jul 4, 2022 | DailyFX
James Stanley, Senior Strategist

Staying Bearish on Stocks: Top Trading Opportunities

It’s been a rough year for stocks but I don’t think that the low is in just yet. Maybe something along those lines happens in Q3, some type of bottoming effect, but I’m not anticipating as such from where we’re at now.

The Fed has shifted and at this point, that seems fairly obvious. What makes me retain a bearish approach towards equities is how there’s still so much ‘buy the dip’ mentality showing around global markets. And while the Fed has already made some inroads towards tighter policy, we still have yet to see any significant response with inflation which means the Fed is going to have to keep hiking until something begins to shift. And at this point there simply is a lack of evidence suggesting that this may be near and, if anything, there’s evidence pointing in the other direction with impact still set to show from the lockdown in China and the ongoing war in Ukraine.

The effects of higher rates are also likely to bring a larger toll on emerging markets, which could, in turn, bring additional impact to US equities that like to sell products and derive revenue from these economies. Combine that with an expected pinch in Europe as inflation scales higher and there’s not a lot of optimism on the horizon for equities and at this point stocks are still quite overvalued compared to historical norms.

I’m going to retain my bearish stance on US equities into Q3, specifically looking at the Nasdaq and S&P 500. But, even the Dow brings some bearish potential into Q3 as prices have, so far, tested but not broken below, a critical set of supports straddling the 30k psychological level.

DOW JONES

There’s a major spot of support on the Dow Jones chart running from a Fibonacci level at 29671 up to another Fibonacci level at 30,109. In between those two, we have the 30k psychological level so this is a big batch of support on the Dow Jones chart.

And, just as it did in early 2021, this spot has so far helped to cauterize the lows as bulls have provoked a bounce. This has so far led to a mild bounce and that bounce may continue for a little while but, there’s resistance overhead at 31,393 and then another confluent zone around 32,500 that could prove as problematic for bears.

I think the support zone around 30k could give way in Q3. The next confluent support zone on my chart is around 27,459, which is a little over 10% away from current price, as of this writing.

DOW JONES WEEKLY CHART (2018-PRESENT)

Staying Bearish on Stocks: Top Trading Opportunities

Chart created with TradingView, prepared by James Stanley

S&P 500

For my Q2 top trade, one of the big sticking points in the S&P 500 was a confluent zone of support that was previously tested in Q1 but, by the end of the quarter, hadn’t yet given way. This confluent zone was between two Fibonacci levels at 4186 and 4211. It finally gave way in April before showing up as a resistance test in late May.

There was another confluent zone between two Fibonacci levels a little bit lower that ran from 3802-3830. This zone came in as support in mid-May and was broken-through in early-June. As of this writing, it’s coming back in as resistance.

At this point, the trend seems fairly clear and lower prices seem likely. The bigger question is timing as I’m writing this with a little more than a week before the end of Q2. But, this bounce may run for a little while longer as there’s still some open gap running above the 3900 level.

For Q3, I want to look for price to move down towards 3500, which is around the 50% mark of the pandemic move. This would be a loss of approximately 7.5% from current price and given the backdrop, it seems a reasonable support target. There is another more important zone, however, and that’s down around 3200. There are two Fibonacci levels straddling that price and that’s about -14.3% away. It would be a bit aggressive for a move in a single quarter but I’m not going to rule it out – instead, I’ll merely mark that as a support target that I think can come into play by the end of the year.

S&P 500 WEEKLY PRICE CHART (2018 – PRESENT)

Staying Bearish on Stocks: Top Trading Opportunities

Chart created with TradingView, prepared by James Stanley

NASDAQ

The Nasdaq continues to show a more developed bearish trend and I think this will remain the case through Q3. While the S&P 500 is currently finding resistance at the 38.2% Fibonacci retracement of the pandemic move, the Nasdaq is finding resistance at the 50% mark of its own move around that same period of time. And while the S&P 500 has drawn down by as much as 24.32%, the Nasdaq has given up as much as 34% from the high set last November.

And this makes sense: With rates moving higher, the riskier tech-heavy index has become more vulnerable. And as rates continue to jump funding to companies will become more difficult and this is something that can continue to negatively impact higher-beta issues that populate the Nasdaq.

The next spot of support on my longer-term Nasdaq chart rests in the zone from 10,500-10,750, the former of which is the 61.8% retracement of the pandemic move. That’s a little under 10% from current prices and seems a reasonable support target for Q3. Should the move continue to develop, which given the drivers, it can, then a 10k print can’t be ruled out from the equation.

NASDAQ 100 WEEKLY CHART (JUNE 2018 – PRESENT)

Staying Bearish on Stocks: Top Trading Opportunities

Chart created with TradingView, prepared by James Stanley

 

DailyFX and IG.jpg

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • image.png

  • Posts

    • EURUSD Elliott Wave Analysis Trading Lounge Day Chart, Euro/U.S.Dollar(EURUSD) Day Chart EURUSD Elliott Wave Technical Analysis FUNCTION: Trend MODE: impulsive STRUCTURE:black wave 3 POSITION:red wave 3 DIRECTION NEXT LOWER  DEGREES: black wave 4 DETAILS:black wave 2 of red wave 3 looking completed at 1.07232, now black wave 3 of 3 is in play. Wave Cancel invalid level:1.07232     The EURUSD Elliott Wave analysis on the daily chart provides a detailed view of the current market trend and its expected movements according to the Elliott Wave theory. The primary function of this analysis is to identify the ongoing trend, which is classified as impulsive. This indicates that the market is experiencing strong directional movements, characterized by significant price shifts that align with the main trend direction.   The central structure under analysis is black wave 3, a critical component of the impulsive wave cycle. Within this broader wave structure, the market is positioned in red wave 3, signifying an ongoing and typically powerful phase of market activity. Red wave 3 is often marked by substantial price movements and is a pivotal part of the impulsive wave sequence.   Looking ahead, the analysis points towards black wave 4 as the next direction for the lower degrees. This wave will follow the completion of black wave 3 and generally involves a corrective phase where the market consolidates its recent price changes before resuming the primary trend.   The details of the analysis highlight that black wave 2 of red wave 3 appears to be completed at a specific price level. This completion indicates that the market is now in the phase of black wave 3 of 3, suggesting continued strong market activity as part of the larger impulsive wave structure.   A critical aspect of this analysis is the wave cancel invalid level, set at a particular price point. If the market price falls below this level, it would invalidate the current wave count, necessitating a reassessment of the Elliott Wave structure. This invalidation level is crucial for confirming the accuracy of the wave pattern and the anticipated market direction.   In summary, the EURUSD pair is currently in an impulsive trend on the daily chart, situated within the third wave of the black wave 3 sequence. The market has completed black wave 2 and is now progressing through black wave 3 of 3. Monitoring the invalidation level is essential to validate the current wave count and accurately forecast future market movements.     EURUSD Elliott Wave Analysis Trading Lounge 4 Hour Chart,       Euro/U.S.Dollar(EURUSD) 4 Hour Chart       EURUSD Elliott Wave Technical Analysis     FUNCTION: Trend MODE: impulsive                                         STRUCTURE:blue wave 3 POSITION:black wave 3 DIRECTION NEXT LOWER  DEGREES:  blue wave 4                       DETAILS:blue wave 2 of black wave 3 looking completed, now blue wave 3 of 3 is in play. Wave Cancel invalid level: 1.07232 The EURUSD Elliott Wave analysis on the 4-hour chart offers an insightful perspective on the current market trend and its anticipated movements within the Elliott Wave framework. The primary function of this analysis is to identify and understand the trend direction, which is currently classified as impulsive. This suggests strong, directional movements in the market, characterized by decisive price actions that align with the main trend.   The main structure under consideration is blue wave 3, an integral part of the impulsive wave cycle. Within this broader structure, the position is identified as black wave 3. This placement indicates that the market is experiencing the third wave of the blue wave 3 sequence, which is typically one of the most powerful and extensive waves in the Elliott Wave theory, often marked by significant price increases or decreases.   Looking forward, the direction for the next lower degrees points towards blue wave 4. This wave will follow the completion of blue wave 3, and it typically involves a corrective phase where the market consolidates its recent gains or losses before continuing in the direction of the main trend.   The analysis details that blue wave 2 of black wave 3 appears to be completed. This completion sets the stage for blue wave 3 of 3 to be in play, indicating a robust and extended market movement as part of the larger impulsive wave structure.   A critical aspect of this analysis is the wave cancel invalid level, set at a specific price point. If the market price falls below this level, it would invalidate the current wave count, requiring a reassessment of the Elliott Wave structure. This invalidation level serves as a vital checkpoint for confirming the accuracy of the wave pattern and the expected market direction. Dy In summary, the EURUSD pair is currently in an impulsive trend on the 4-hour chart, within the third wave of the blue wave 3 sequence. The market has completed blue wave 2 and is now progressing through blue wave 3 of 3. Monitoring the invalidation level is crucial to validate the current wave count and forecast future market movements accurately.   Technical Analyst : Malik Awais Source : Tradinglounge.com get trial here!  
    • Holograph has exciting potential! Its narrative of enabling creators to mint digital art across chains is compelling. Similar projects have seen success, and I think Holograph will bring innovative cross-chain minting solutions. I noticed a tweet about its native token HLG listing on Bitget today
    • ASX: LIGHT & WONDER INC. – LNW Elliott Elliott Wave Technical Analysis TradingLounge (1D Chart)   Greetings, Our Elliott Wave analysis today updates the Australian Stock Exchange (ASX) with LIGHT & WONDER INC. - LNW. We determine that LNW is developing under wave ((ii))-green and may end soon, and is ready to allow wave ((iii))-green to return to push higher.     ASX: LIGHT & WONDER INC. - LNW  Elliott Wave Technical Analysis   ASX: LIGHT & WONDER INC. - LNW  1D Chart (Semilog Scale) Analysis Function: Major trend (Minor degree, red) Mode: Motive Structure: Impulse Position: Wave iii-blue of Wave (iii)-purple of Wave ((iii))-green Details: The short-term outlook shows that wave ((ii))-green has extended longer than expected, developing into a Double Zigzag. Wave (x)-purple has just completed, and wave (y)-purple is unfolding to continue pushing lower. Invalidation point: 136.07   ASX: LIGHT & WONDER INC. - LNW  Elliott Wave Technical Analysis TradingLounge (4-Hour Chart) ASX: LIGHT & WONDER INC. - LNW  Elliott Wave Technical Analysis ASX: LIGHT & WONDER INC. - LNW  4-Hour Chart Analysis Function: Major trend (Minute degree, green)   Mode: Motive   Structure: Impulse   Position: Wave b-blue of Wave (y)-purple of Wave ((ii))-green   Details: The shorter-term outlook suggests that wave (y)-purple is currently unfolding, subdividing into waves a, b, c-blue, with wave a-blue having just completed. Now is the time for wave b-blue to unfold, pushing slightly higher before wave c-blue returns to push lower. This sequence would complete wave ((ii))-green, allowing wave ((iii))-green to resume and push higher. Invalidation point: 162.00   Conclusion:   Our analysis, forecast of contextual trends, and short-term outlook for ASX: LIGHT & WONDER INC. - LNW aim to provide readers with insights into the current market trends and how to capitalize on them effectively. We offer specific price points that act as validation or invalidation signals for our wave count, enhancing the confidence in our perspective. By combining these factors, we strive to offer readers the most objective and professional perspective on market trends.   Technical Analyst: Hua (Shane) Cuong, CEWA-M (Master’s Designation). Source : Tradinglounge.com get trial here!  
×
×
  • Create New...
us