Yes, the market is still in a primary downtrend. The S&P 500 is still below a DECLINING 200 day moving average. The lower high and lower low that I mentioned a month ago is still very much intact as long as the S&P 500 stays below 2,116.48. The spirited rally that the market has enjoyed since February 11th doesn’t change any of this.
However, there is an interesting technical chart pattern worth watching now and keeping a look out for in the future. In the last six months, the market has made two pronounced and tradable “W” formations also called double bottoms. These are bullish patterns capable of delivering fast gains.
The measured move of a W formation is calculated by adding the height of the W to it’s top. I calculated a conservative height that ignored the “tails” of the daily candlesticks as well as a more aggressive target including the full height to draw in the rectangular “measured move zones” in the chart below.
As you can see, the first W did just barely reach it’s measured move target zone before running out of steam. IF the current W follows suit, that’s good for at least another 50 points in the S&P 500!
There are a couple of ways you can you play these bullish patterns when you spot them, even in a bearish market. First, you can just simply buy a tradable index ETF such as SPY. Both of these Ws featured picture perfect 821x buy signals as they finished forming.
Another strategy you could take is to seek out and purchase stronger stocks as you see this pattern developing in the S&P 500. That’s what I did in the model portfolio. Stocks such as RYAAY and COKE are out-performing the market, holding up above their rising 200 day moving averages. The idea is that, if the downtrend in the S&P 500 resumes, which is likely, these stronger stocks will hopefully not get hit as hard as the market as a whole.
One thing that would be absolutely foolish to do is to complacently buy without a plan, thinking the market HAS to go another 50 points higher. The market doesn’t HAVE to do anything. The measured move calculation is just a POTENTIAL scenario to be aware of.
Regardless, it is worth keeping an eye out for these patterns. We all know that you can never have too many W’s in your trading account.