With Non-Farm Payrolls at the centre of attention today, everyone is expecting the numbers to come out in less than an hour. Bulls are in control of the trend in S&P and are making their best to reach 1900. The last few years we have witnessed the markets rise despite disappointing macroeconomic announcements so it won’t be a surprise to me today to see a bad NFP number and the market hit new all time highs towards 1890-1900. That is why we are going to focus only on the technical side of the market and take our decisions on how the price of the index moves. Our view for some time now has been bearish due to the divergence in the RSI. This does not mean that we should short the market right away but it means that bulls need to be extra cautious not only because of the divergence but also because of several other reasons that we explain below.
S&P is trading near its upward channel boundaries. So it is trading close to its resistance. Trend is still up but we believe that bulls have more to lose at these levels than bears. On the other hand we have seen divergencies run for a long time, so bears need to be patient and wait for the confirmation sell signal before going short.
The upward move from 1737 is a complete 5 wave formation and this means that a reversal towards the 38% Fibonacci retracement should be anticipated. This does not mean that we cannot go higher. Unless support at 1870 fails we are going to see 1900. With NFP announcement, volatility is expected to rise so a downward spike to trap bears could happen, so bears should be patient and cautious to wait for at least an hourly close below 1870.
Even the rise from 1834 looks complete according to wave theory, but unless we see support at 1870 fail, we would not go short. Support is also found at 1850-60 area so for intermediate term bears a close below the 61.8% retracement would give a sell signal. On the other hand, if prices spike upwards and no hourly candle closes above 1880, we can say that bull trap is in play and that there are increased possibilities for a larger trend reversal.
The market will dictate the trend and so traders should mainly be cautious and patient waiting for an important price level to break. Soon we will now if trend will reverse or if the bulls will still have the upper hand towards 1900. Thank you for taking the time to catch up on my thinking.