On Monday 27 Jun 2022 6.06pm, I emailed Clients my latest post titled 'Green Shoots on the horizon??'.
Below is the full transcript for your perusal:
'Dear Clients
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Another month, another continual selloff.. or is it..?
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A quick recap of what I said in my May 2022 post and what transpired in the world's most important stock index - the S&P 500 (aka SPX):
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On 23 May 2022, I said,
'So as we kick off this new week, we need to watch out if this blue zone will truly put a backstop to this current correction or will the proverbial 'next shoe' start its drop to SPX 3700+/-**? IMHO, we are probably just days or weeks away from the bottom. **Note SPX 3700 was the worst but low probability scenario as already described in my 21 Feb 2022 writeup due to the sustained execution of the bearish Head & Shoulder Formation. Read more on this here: https://www.thom-ng.com/post/let-it-go-thomas-ng-21-feb-2022.'
S&P500 Index Daily, 8-mth
Immediately after my 23 May post was released, price action did catch a bid at my high probability blue support zone (SPX 4000-3900); SPX thereafter rallied ~10%. Unfortunately sellers came back in full force again as price action got turned down just before the 38.2% Fibo retracement level. A weak bounce, so to speak.
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Then, selling quickly accelerated all the way down to 3700. On Friday 17 Jun, SPX closed at a 52-week low of 3675 but again swiftly crawled back above 3700 to close at 3912 the following Friday 24 Jun. It appears my SPX 3700 target continued to have significance as price only closed below 3700 for 2 days.
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Back in Feb 2022, I did warn about the potential of a bearish Head & Shoulder pattern which targets the minimum of SPX 3700. However I'll admit I wasn't expecting to get there as I think the 4000-3900 blue support zone was sufficient to hold up this correction (due to wave A = wave C target). In other words, 3700+/- was the lower probability but very painful target to reckon with, out of the many support zones that I look at.
As mentioned many times before, Mr Market does not give a hoot to what I think or analyse and it will do what it wants to challenge the stand of the staunchest bulls out there.
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So what's next?
If you follow me long enough, you will know the playbook is always the same - if the Bulls truly wants to make a difference this time round, we'll need to start seeing some exciting price action from them to reclaim the upper segment of the Bollinger Bands, followed by a successful back-test back of the midpoint line of the Bollinger Bands. Anything less than that, I still cannot rule out a lower low or flattish/neutral price action in the days ahead.
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Saying that however, we do have some interesting developments across intra-markets I'm monitoring and yes they are showing me the proverbial 'Green Shoots' that Bulls are finally summoning more enthusiasm in making a real comeback:
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Pls see below Chart A which shows the relative performance of SPY (S&P500 ETF) vs the following six ETFs for the past one month:
1) ARKK (blue) - Cathie Wood's flagship fund which invests in companies globally that are involved with, or that benefit from, disruptive innovation.
2) KWEB (bright green) - Fund which invests in Chinese software and information technology stocks
3) XBI (pink) - Fund which invests in US biotech stocks
4) IPO (cyan) - Fund which invests in US new ipos
5) SPAK (black) - Fund which invests in US SPACs
6) GBTC (dull green) - Fund which invests in Bitcoin
Chart A - Relative Performance Chart SPY vs ARKK, KWEB, XBI, IPO, SPAK, GBTC
Chart B - Bar chart equivalent of Chart A
All six groups of stocks above are the worst-performing leading segments of the current multi-month Correction. Think 'Growth' & 'Speculative' as the core theme here.
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As you can see from Chart A*, the ARKK, KWEB, XBI & IPO ETFs are now showing relative strength vs SPY (red line). The only 2 ETFs that are weaker relative to SPY for the past 1 month are SPACs & Bitcoin ETF.
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As the Chinese saying goes, '哪里跌倒, 就从哪里爬起来'. Translating it to English, it means literally 'from where you fall shall be where you get up'. If GBTC & SPAK ETFs also start to ramp up relative to SPY, we should look forward to more bullish times ahead.
*Note Chart B is the bar chart equivalent of Chart A
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Conclusion in Layman's terms:
My SPX 4000-3900 blue support zone & 3700 downside pattern target showed great support significance as price action bounced off rather quickly from both levels.
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However, until Bulls delivered more concrete action via my Bollinger Bands playbook, a lower low still cannot be ruled out.
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Green shoots are appearing as the most down-trodden areas of the market are showing relative strength vs the S&P500 Index.
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I'm a staggered buyer of SPY and will be adding the Lion OCBC Hang Seng Tech Index ETF (corresponding to the above-mentioned KWEB ETF) & tactically ARKK ETF too.
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Let's watch this space! Live Long & Trade Well.
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Thank you & regards
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Thomas Ng, CMT
Principal Trading Representative 首席股票经纪
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#plsreaddisclaimer #chartforillustrationonly #spx20may22 #greenshoots #befluid #wytant #livelongandtradewell
Chart source: stockcharts / tradingview
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