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May 23, 2022

Big Warning For SPX500 Bulls

Frank Cabibi

Traders see some green today as the S&P climbs a little over 1% today. After several weeks of red, investors may see a minor turnaround for the time being. However, SPX500 bulls should still be wary of a few things that warn of a recession.

Potential Bottoming

There are signs that the index could be bottoming and ready to shift momentum to the upside, however, the past few times have failed to do so. But, with every failed attempt, we have seen a significant bounce that encourages traders to scale back in. The problem is that volatile swings in either direction that ultimately end up in lower lows keeps investors from having enough confidence in the market.

Bond yields have come back up again to around 2.86% which points towards strength in the USD. Treasuries have retained a 2.8% yield for the past month or so. The dollar index has been pulling back regardless, so it could be indicating that either the USD has been priced in or that we are gearing for another long setup on the dollar.

COT suggests that the dollar is still long-heavy while both long and short contracts increase from last Tuesday. At the same time, institutional holdings on the SPX500 have decreased while short contracts saw an increase. The number of long vs short contracts is continuing to even out which is alarming to investors.

SPX500 Setups

spx500

A look on the 4H timeframe helps us see that a bottom could be coming soon based off a few technical indicators. Lower lows have been made but at a decreasing rate. Instead of a stair-like pattern we used to see, the lower lows are forming a kind of slope pattern. This could be indicating that a push higher is likely. The question lies in how much higher will it go before retracing once again.

spx500

The 1D timeframe also provides some potential ideas of where the index could move from here. This current bounce could take the market to that falling trend line which has held up pretty well for three attempts in the past. However, if that gets broken, we could see another test a little higher around the $4060s. So, for this week, I am not expecting a bottom to form here, but I do expect a bounce at least to take price a little higher.

UK100

spx500

UK100 looks somewhat promising on the 1D after price runs up 1.5%. Price was quick to come back up from the bounce off the 200 DMA which suggests that a potential break in this wedge formation could happen. If price does end up breaking and closing above this level, we may see a run higher towards the 7620s.

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