Many traders and investors speculated about a potential market collapse or at least a meaningful rally as the S&P 500 reached below 4100 and reached around 4100 in 4 days.
The rally was expected to be short-lived, as explained in the video below the post, using multiple scenarios to differentiate a bull trap from the bottom of the market by focusing on price action characteristics. This was further supported by the Resistance of Bearish reversal to 4100 on 18 May 2022 for the S&P 500.
Capitalization is required for the bottom of the stock market
Calling down the stock market requires surrender from both the organization and the retailer. Prior to market capitalization, the leadership of the sector, industry groups and stocks are likely to disappear together with the market rotation as smart money is diverted from the market.
The current market price structure is very similar to the 2008 global financial crisis described in my video about the stock market crash deja vu, take a look at how the consumer mainstream ETF XLP behaved before the market capitalization in 2008. Shown below.
The XLP surpassed the S&P 500 from January to September 2008 as the XLP attempted to breakout to a new high on September 19, 2008 (annotated as 1). The lower has formed the lower.
A few days before the breakout failed in XLP, sales growth was observed as shown in the volume pane (annotated with the blue arrow), which served as the red flag of the breakout effort. After a break below immediate support (note 2) with increasing volume, XLP struggles to move forward and eventually surrenders to the S&P 500.
After the formation of the swing low, the drop rate was 25% in the S&P 500, with steep, wide price spreads and downward weather movement. The volume increases sharply down the path. Characteristics of both price and volume indicate market capitalization. Subsequently, a meaningful assembly outside of the over-sold condition marks the climax of the sale and the bottling process is unveiled, which lasts for 5 months.
As shown in the chart above in 2022, XLP has experienced heavy sales of the proposed rotation from the main consumer sector. Notable as this The XLP is traditionally a defensive sector, usually ending up rotated by smart money..
Since the end of April 2022, XLP has experienced an increase in sales as shown by the volume and a failure has broken below the support at Bar 78 (note 1). Failure is followed by a continuum of excessive sales, known as uptrust after distribution, a classic phenomenon where smart money unloads their long positions or even starts short positions.
On 18 May 2022, the XLP broke below support at 76, with the largest bearish bar (annotated as 2) since the volume of the Covid-19 dropped, prompting emergency agencies to sell. Since the unfolding sequence is similar to the one in 2008, we can assume that a potential stock market capitulation could begin as soon as 2008. This kind of analog comparison can be as effective as I expected it to be explained in the video about the Beer Market Leading Indicator before it goes on sale on May 9, 2022.
Estimate a bull trap using the Wyckoff method
As mentioned earlier, watch the video below to learn how to recognize a bull trap and not be distracted by the market downstairs.
It will be used in conjunction with the analog comparisons mentioned above to better interpret messages from the market. Attempts to rally are expected as demand was observed last Thursday and Friday. If the rally fails to commit above 4100, the stock market’s capitulation may begin soon. Visit TradePrecise.com to get more stock market insights in free email.
This article was originally posted on FX Empire