Market Update – 18 March 2022

Market Update by Nick Radge

Watch the Market Update by Nick Radge for some insights on the market, 18th March 2022. Nick Radge talks you through the charts.

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Transcript

Here is the ASX 200 or the XJO, and you see that price has really done nothing at all for about a year, and that’s reasonably why our trend-following strategies have not done a great deal of late and that’s to be expected. You can see here that the market is pretty well at the same level as it was in May last year. But interestingly, you can also see that it has a tendency to sit in sideways patterns for extended periods of time before that trend moves higher. That’s kind of what we’re doing now. We did just probe down through the lower side, but we’ve come back up into that range now. But if we just zoom out to the weekly chart, there’s some important information on there. So here we have this line of support running through here that’s around the 7,200 level. And we broke down, this bar here is pretty important and it’s also gonna coincide with what I’m gonna suggest in the S&P 500 as well.

Now, the important takeaway for this particular bar is two things.

First of all, the closing price, which is right there, and you’ll notice that the close is well off the day’s low. So there’s the day’s low. There’s the closing price right up there. And importantly, the major piece of the puzzle is that big spike in the volume. Now this is a proprietary indicator of mine, this volume chart here, but basically this greenish line at the top is a standard deviation of the volume. And it basically is telling us extreme volume, and that’s important information in context of what’s going on in the chart.

Now on the chart there, you can see that we’ve got a close well off the low, we’ve got very, very high volume and the only way it can close off the low is if buyers are in control. So what we have here is what we call buyer demand. Now that doesn’t mean that buyers won’t be there the next time on the way down, but it’s something to consider that any weakness has been sought after and that’s a positive trait. So we’ve slowly pushed back up higher, and we’re back into this trading range, so that’s important information.

But let’s now move across to the S&P 500 chart. So the S&P 500 chart, you can see we’ve got this zone of support running all the way back from May of last year. We kind of probe through there. Now, if we zoom in to have a look below that probe, we’re gonna see something pretty interesting there. Let’s zoom right in. The two bars that we’re keen to look at is this one right here, big down day, with a very high close. Look at that close right at the top of the bar, and look at that volume, big, big volume outside the standard deviation. So that’s extreme volume, big probe down into support, big push back up, and a high close on high volume. That’s buyer demand right there.

Now, if we look forward here, same kind of thing. Doesn’t have to be exact, but you can see it’s in the same kind of area. Big probe down, very high close, and, again, extreme volume. So what we can assess from this is there’s big, big buyer demand in this region down here, and you can see we’re starting to push back up.

Now, I’m not going to talk fundamentals. I don’t know enough about fundamentals to sit here and talk about it. But what I’m seeing here on the charts is very, very, very bullish price action, and it may well be that we’re going to probe higher.

There’s a lot of negative sentiment out there, a lot of people talking about inflation running high, a lot of talk about the Federal Reserve increasing interest rates up to seven times this year. Now that may be the case, but one of the most important things to understand here is –

What if the market is priced in too much?

What if the Federal Reserve doesn’t increase interest rates by so much?

What will that do to the market?

It’ll actually send it to the moon regardless of what’s going on.

What could cause that? Potentially what’s going on with Ukraine and Russia. That would be detrimental to the global economy. We’re seeing a recurrence, an outbreak of COVID now. We’re actually seeing it here in Queensland, but obviously the big one is in China. But in Queensland, just today, there’s talk about bringing in more restrictions, and that’s something we’ve not heard for quite some time.

Interestingly, those that are into technical analysis, there’s a couple of things in this chart here that may be of an interest. The first thing is this ABC pattern we see right here. As I said before, we’ve got buyer demands on both of these down points. So ABC patterns are very, very common in the market. They can take various shapes, but they tend to be a retracement pattern in a larger up trend. So we’ve got this overlapping price trend. We don’t have downside momentum or thrusting price action. It’s corrective price action, and it’s supported by big buyer demand on these down days at a level of support. So that’s the first thing.

Anyone that knows anything about ABC patterns, they tend to be bullish and a minimum expectation would be a move back up up towards those highs right there. So that would be the minimum expectation.

Now, another very important pattern here, and one of the most bullish patterns out there, you don’t really read it a great deal, but if we have a look here, we can see what appears to be a head and shoulders pattern. Now, these are generally seen as bearish, and what we basically have got there is a fake out. So when we broke down through the neck line, which was in this area here, it was a fake out.

So a lot of people were probably looking to break that support, sell into it, but it was met with big buyers. Now, one of the most bullish patterns in the market is a continuation head and shoulders pattern. So you’ve got the head and shoulders pattern, and it continues as prices break up and through that right shoulder. Very, very bullish pattern. Don’t hear it spoken about a great deal. I first was introduced to it back in the ’90s when I read the book “PPS Trading Strategy” by Curtis Arnold. It’s one of the patterns he talked about as being a very high probability pattern, and my experience since that time has confirmed that. So pretty bullish there for the S&P 500.

Apple

Let’s go and have a look at some individual names in the U.S. market. First up, we’ve got Apple. Apple has been one of this bull markets big leaders. The two bars we want to kind of have a look at here, again, associated with what we spoke before, break down through support, very high close, and we’ve got extremely high volume, and another one there, big gap down, big high close, and again, we’ve got the high volume. So Apple looking okay, stuck in a range. It might grind out in this range for quite some time. That’s possible. But potentially, it’s consolidating, and we’ll always like to see consolidation patterns in these markets because they tend to be trend continuation style patterns.

Microsoft

Another one to take a look at is Microsoft, again, being a market leader, and you can see it’s come back to the support. In this particular case, we’ve essentially got three instances where buyers have come in. There, there, there, and again there, okay, all on high volume. So that’s a good level 280 there suggesting that buyers are very interested in this stock down at those kind of levels. So that’s a good sign. I’d only be concerned if we started getting closes at the lower end of the bar and trading down, so closes down here on high volume. But at the moment, all the volume is on the upside with high closes, and that’s a sign of buyer demand. Let’s keep moving along.

Amazon

Let’s have a look at Amazon. Amazon, probably one of the weaker stocks out of the market leaders, and you can see it’s been tracking sideways for a considerably long time. But again, we’ve come back into this area of support that’s been tested a number of times. So here a lot of work being done in here, and you can see volume pushing up, so some buyer demand in that area as well. So we’re back into the range and it may well be that we just grind out in this range for a few months, but potentially, bigger picture, it still looks very, very positive as a ongoing continuation pattern right there.

Gold

Next chart. I don’t really take that big of interest in gold, but let’s take a look at it ’cause I know there’s a lot of interest out there. If we just flick across to the weeklys, you can see that we’ve hit this big area of resistance that extends back to 2011, 2012. We’ve actually broken through it, but importantly, let’s have a look at the volume that’s going through there. A lot of people probably saying, “Oh yeah, this is a cup and handle pattern, yada, yada.” It may well be but not just yet. I think the most important information we can garner from this chart is first of all, we’ve got a weak close on this bar up here.

Look at this bar last week, very weak close. Prices probed up towards those highs over there, closed on the low, and take a look at that volume, extreme volume. This is the opposite to what we’re seeing in stocks. Here, we’ve got a lot of selling going on. There’s only one way that the market can close low and do so on very high volume, extremely high volume, and that’s ’cause sellers are in control and you can see there’s been a little bit of follow through there. So at this juncture, I would suggest potentially, we’ve got this zone of support through here, and you can see we’re kind of coming back into that.

It may well be that we grind around in here for a little bit. It could be that we grind around a little bit higher up here before we break out. But I would suggest we’re going to come back into this range. So some interesting charts going on there at the moment.

Summary

In summary, let’s just take a look actually before I forget, the Russell 2000, the small caps, this is the weekly chart. You can see it’s broken down. That’s not a particularly good sign. We had a fake out at the top, break down the bottom. That’s not particularly good.

But if we zoom into the dailys again, you can see there’s some buyer demand down here, and I’ll just highlight that. So buyer demand down here, high close. Not a great deal of volume going on there, and again, down here associated with these lows and we’re pushing back up towards. So if we can break back up through that 2100, we’re back in that broad range, which is a good sign, and that may well take some time to actually play out ’cause you can see here, it’s grinding for about a year on the sideways there. So I’d like to see that Russell breakout to the upside, but there’s a lot of work to be done before that happens.

But I think the most important chart is this S&P 500. I think that looks extremely bullish especially in the near term. No reason why we couldn’t go and test those all time highs. I’m not so sure that we will actually fly through those to some extreme level, as a few people it a melt up may well happen, but I would have to think that the Federal Reserve will turn around and completely change their rhetoric on their rate hikes. If they do do that, then yeah, sure, I think this market is right for a rip to the upside.