Simon Maierhofer from MarketWatch sees a bear market coming. Apple and Amazon could be important players here.
• Potential 1-2 setup
• Apple and Amazon stocks could favor bear market
• Put-call ratio below 0.5
Bears could threaten
According to Simon Maierhofer from MarketWatch, a pattern with massive declining potential is emerging in the S&P 500. The high of June 8 was at 3,233.13 points below the high of February 19 at 3,393.52 points. Furthermore, the high of June 16 was at 3,393.52 points below that of June 8. Similar patterns existed for the Dow Jones and the Russell 2000. The NASDAQ Composite and NASDAQ 100, in turn, have surpassed their February highs and are not being applied to this pattern of lower highs, Maierhofer said. According to the principle of the Elliott waves, this phenomenon is called a potential 1-2 setup, he explained. The Elliott waves are a theory with recurring wave patterns that take into account psychological aspects of buyer behavior, whereby wave 3 is the strongest of a 3- or 5-wave sequence. There is a low in wave 1 and a high in wave 2. Meanwhile, wave 3 is about to bottom out. According to Maierhofer, the theory should be treated with caution because it is shaped by interpretations and prejudices of the interpreter, but if you use it responsibly, you can gain insights that no other tool can offer.
Possible U-turn on the market
Should the price move above the June 8th high of 3,233.13 points in the future, the bearish 1-2 setup would not be true, so the difference between the February 19 high and the June 16 high could be overcome, says Maierhofer. Looking at the 2008 trendline resistance, the June 8th high could also mean a reversal of island reversal. In this case, the S&P 500 should not close above this line of around 3,180. Should the course move below 3,100 points, this would validate the 1-2 setup. The values of Apple and Amazon, the largest components of the SPDR S&P 500 ETF and Invesco QQQ Trust, also allow a withdrawal from this pattern. This is still likely if Apple does not make it around $ 360 and Amazon falls below $ 2,620.
Put-call ratio shows bullish tendency
On June 10, the moving average of 20 days put-call ratio on the Chicago Board Options Exchange (CBOE) fell below 0.5, Maierhofer said. This means that option traders have bought more calls than puts for 20 days and are therefore more bull strategies than bearish ones. This happens rather rarely: He referred to periods from 2004 in which the put-call ratio was also below 0.51. In these cases, the average return for the S&P 500 was negative for the next three months, and the chance of a positive return two months later was 43 percent. In the past six months, he analyzed more than 300 studies, most of which predicted more recent short-term weaknesses. Basically, a downward pattern cannot be dismissed out of hand if the S&P 500 remains below the resistance levels of both 3,235 and 3,180 points.
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