After the FOMC - what's next?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
I have received numerous emails and questions regarding the market's set up and what to expect after the Triple-Witching event (FOMC, Futures/Options expiration) last week. It appears many traders/investors are seeking some clarity related to price trends and the potential opportunities that are setting up in the US markets right now. In this research article, my research team and I provide some greater detail related to what we believe is likely to happen over the next 5 to 8+ weeks.
Our recent Gann/Fibonacci research article drew quite a bit of attention from readers. Their biggest concern was that we were suggesting a major peak in the markets could setup in early April 2021. We want to be clear about this longer term market setup to make sure our readers and followers fully understand the implications of this technical pattern.
A peak/top could start to setup anytime after April 1, 2021, based on the Gann/Fibonacci research we've completed. But, that peak/top setup could also happen anytime between April 2021 and August 2021 (or slightly later). Timing this pattern is not something we can accomplish very easily as the range of dates where this Gann/Fibonacci inflection level exists consists of about 5+ months. The one key factor we continued to stress in that article was to "watch for a technical breakdown in price above the $379 to $380 price level on the SPY". Many readers may be able to comprehend what we are trying to say by this statement, but we'll try to help clarify it by showing what it would look like on a price chart.
Back in November 2020, we published a research article about how to spot an Excess Phase Top and the 5 unique phases that take place when this type of top executes. You can read this article here:
www.thetechnicaltraders.com/how-to-spot-the-end-of-an-excess-phase-part-ii/. It is important to understand how capital continues to seek out opportunities within any market trend and how the current shift away from the NASDAQ and into the Dow Jones, Russell 2000 and other various sectors has started to shift the way the markets are reacting right now. We are seeing more weakness in the Technology and Internet sector now than we've seen in almost a decade. This could be setting up the first technical patterns of an Excess Phase Top already.
Monthly NQ Chart Shows Excess Phase Top May Already Have Started
The following Monthly NASDAQ chart highlights the five unique stages of an Excess Phase Peak and shows the recent weakness in the NASDAQ price trend may have already started the Phase B (Price Flagging) stage. Within this phase, price trends moderately higher for many weeks as weakness in the bullish price trend sets up a "rollover" type of peak. Obviously, the previous excess phase rally is stalling and traders are not yet fully aware of the risks that may continue to be present if this pattern persists. This Phase C (Breakdown of the Flagging pattern) would prompt a move to intermediate support, which will likely become the Critical support level in the NQ that may prompt the bigger Breakdown event(See the "D" setup).
So, what would price activity look like if our research is correct? How does this translate into opportunity for traders/investors right now and what should they look for in the future?
Expect Many Weeks of Flagging In The NQ
Let's focus on the Weekly NQ Futures chart, below, and how the price has already set up into a potential sideways Bullish Flagging trend. The first thing we want you to focus on is the broken YELLOW bullish trend line. We would expect any continued sideways Flagging trend to trade within the CYAN price channels we've drawn on this chart. If this happens, we should continue to expect some moderate upside price trending throughout the sideways Flagging price channel before a bigger breakdown in price happens (as we've drawn in MAGENTA). This is why traders and investors need to fully understand the scope of our Gann/Fibonacci research article and to understand this setup may last into July/August of 2021 before finally entering a deeper downside price trend.
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If our research is correct, the sideways Flagging trend will prompt a moderate upside price trend for many weeks (possibly 4 to 8+) before a moderate breakdown event will see price levels fall -12% to -16% - targeting #D (the critical support level). At that point, the trend may firm up near support and begin a moderate upside price trend for many weeks or months; or we may see a technical price bounce near this level before a more immediate breakdown of price takes place. Either way, the Breakdown Zone is where we would consider a "technical price failure" to have confirmed – validating our Gann/Fibonacci peak prediction.
Currently, numerous sectors are generating new bullish trend triggers – many of which have already rallied 20 to 40% or more. As we suggested earlier, the shift in how capital is being deployed in the markets has prompted various sectors,many of which have been overlooked over the past 12+ months, to really begin to accelerate higher. This is because the froth near the peak in the NASDAQ, as well as the new geopolitical landscape, has prompted traders/investors to shift focus into new opportunities in sectors they believe have continued growth opportunities. For example, the Marijuana, Consumer Discretionary, Infrastructure and Real Estate sectors appear to be entering new bullish trends while the Technology, Healthcare, BioTech and Chip Manufacturers appear to be stalling.
What this means for traders/investors is that there is still lots of opportunity to trade the best opportunities in the markets. This is the focus of my BAN trading Strategy. Until we see a confirmed technical breakdown in the major markets, various sectors continue to present very strong opportunities for skilled technical traders.Don't miss the opportunities to profit from the broad market sector rotations we expect this year, which will be an incredible year for traders of my Best Asset Now (BAN) strategy.
Learning to profit from these bigger trends and sector rotation will make a big difference between success and failure. We want to be clear, we are not calling for an April 1 peak in the markets based on our Gann/Fibonacci research. We are suggesting that a bigger "topping" pattern is already setting up in the markets and skilled technical traders should already be preparing for underlying risks related to this technical pattern. If you are not prepared for this, then please pay attention and learn from our research. You can sign up now for my FREE webinar that teaches you how to find, enter, and profit from only those sectors that have the most strength and momentum. Staying ahead of sector trends is going to be key to success in volatile markets.
In Part II of this research article, we'll attempt to share more information about the Excess Phase Peak setup that may be setting up in the US markets and what to watch out for. Additionally, we'll take a look at the Dow Jones Industrial chart to compare the NASDAQ setup to the INDU setup. Where we are seeing weakness in the NASDAQ right now, the Dow Jones Industrial chart appears to show a much stronger price trend right now.
Enjoy the rest of your weekend!!