For the first time since the 2009 bottom, the SPY or S&P 500 has experienced a lower low. This means a few things. 1.) The market has broken support 2.) There is now resistance ahead. (Old support now becomes new resistance.) This old support was $260 on $SPY, which is now new resistance.
The stock market has 4 different phases. 1. Accumulation 2. Run-up 3. Distribution 4. Run-down.
(See below)
The above was taken from Next Big Trade. I do not trade with the 30 week moving average, but hopefully this paints a clear picture of the stages.
At this point I think we are at the beginning of stage 4. First sign of this is a lower low. Market sentiment is echoing my thoughts. Keep in mind predictions do not make money in the market. You need a solid system of risk management and signs.
If the past is indicative of what's to come, (yes humans seem to act the same way over and over and over again in the market) we should try to learn from it. Below is the S&P 500 from 2007-2009. If you can't remember this was the start of the new trend and a bear market that had people running in the streets.
There was a new low put in, in January of 2008, (think December of 2018). There was an initial bounce to resistance, which failed and sent us back to the lows. From there, it bounced up towards resistance and began to act like it wanted to go higher. Once this failed it was game over. And we all experienced one of the biggest financial crisis of our lifetimes.
Am I saying this is definitely going to happen? No. I do not have a crystal ball. This is what COULD happen. And something I am preparing for if the market acts the way I expect it to. If it does, there could be a very nice risk/reward type set-up in the coming months if you do want to short the market. I won't hesitate if the market shows the right signs. Avoiding garbage while the market plays out is also key. If we are in the midst of a new trend or bear market this is what I expect over the next few months, maybe until May or June.
The market would create a bear flag over the next few months as it digests this big move from highs. Then a look of a move higher would surface, before coming right back into range and flushing out. Don't use this post as an expectation, rather a preparation for what could happen.
I learned my technical analysis from Kunal Desai at Bulls on Wall Street. For more on market cycles, check out Accumulation Phase, Run-Up Phase, Distribution Phase, Run-Down Phase.
