The rally is on! Let's get straight into it by looking at the daily chart.
I have added a Relative Strength Indicator (RSI) which shows a little bullish divergence. This week's low was less weak than the previous week's low. Also, notice how the RSI pushed deep into negative territory compared to the previous times the RSI came down during the bull trend. This is the first time it went so deep under the 30 level since the February correction low. This type of negative reading is synonymous with the end of a significant correction or the first swing low in a new bear market.
There will be many calling the next leg higher now underway. There will be some that take a wait and see approach. Fence sitters. That's the soft option. Sometimes you need to hop off the fence and get into the paddock and have a crack.
Admittedly, this bull market has been one of the most dangerous to tame being backed by the Fed. It is the equivalent of the famous US rodeo bull, Bodacious, known as the world's most dangerous bull. Well, strap me in as I'm ready to have a crack at taming this bodacious bull market!
It is my opinion that this is a bear market rally and once done a steep plunge will ensue.
I have added moving averages with time periods of 14 (purple), 50 (blue), 100 (red) and 200 (black). We can see price found support at the 200ma. Also, we have one of the first signs of a potential bear market being the 14ma crossing over the 50ma. I'd like to see this bear rally get up over the 50ma level which currently stands a touch above 16850.
I have added Fibonacci retracement levels of the move down from the July top to recent low. I generally favour a deep retracement on the first bear rally. Hence, I'm targeting the 76.4% level at 16958. Now price may fall a tad short. I'd like to see price at least clip the top of the very bearish candle from the 31st July at 16869. This is also just above the 61.8% level.
I have drawn a green highlighted rectangle labelled Sell zone. This is the area between the high of the 31st July and the 76.4% level. This is the area where I'll be looking to average up my short positions.
If price trades at least half a percent higher than the 76.4% level then I will start to get the heebie jeebies. I now don't expect to see price get close to 17100. And of course a break of the all time high at 17151 means I'm just plain wrong.
In my previous report, I stated I would like the market to rally this past week and start plummeting next week. Well, that's just me being impatient! The market didn't oblige. It's the one that calls the shots and we have but no option other than to play by its rules. So we wait.
My current thinking is price rallies next week and the following week trades a touch high before turning back down in my sell zone on say the 19th or 20th of August. Let's see.