With the S&P 500 and all other indices selling off last week where will we go from here? Given the current state of the markets a bull scenario and a bear scenario could both easily happen. With on of the largest gains in the past few months we have ever seen, many traders and investors are starting to think we could see a blow off top with prices easily dropping 10-20% . On the other hand we just recent broke pre; Covid-19 levels, that with the help from the FED could easily push us up another couple hundred points by the end of the year.
Bull Scenario
The recent 230 point sell off on the S&P 500 ( ES) could easily be seen as a pull back to previous all time highs. This happens all the time, not to mention we had almost two straight weeks up price moving straight up. With what many traders would describe as mind numbingly boring price action, throughout August as we slowly pushed straight up. This sell off could lead to many new buying opportunities. The ES recently moved up to 3580 about 200 points from our previous all time high, if we go back to our basics and look at what defines and bullish trend. We know that we look for previous resistance , in this case 3370 to turn into support. At this moment (9/6/2020) we can see that price is currently respecting the previous all time high. Now that we are at a possible support level this could be looked at as just another Lower Higher as price stair steps it way up.
This correction is just like the thousands of corrections before it, price moves up extremely slow for a few weeks and then one day falls of a cliff. In bull markets these signals could be looked at as signs of strength as price pulls back and bulls defend the previous all time high.
Bear Scenario
Bears will obviously be looking to call a top in what has been a once in a life time type of recovery from Covid-19. In the past 5 months we have seen price essentially shoot straight up. As we know , what goes up must come down. But the real question is, is price ready to come down? Bears will be looking to argue that price is extended from it mean and too expensive to keep pushing up. As we could look at Thursday and Friday of last week we can see that for the time being they are correct. Price did get very extended, if bears would like to turn this into a bearish market we will need to see 3300 turn into resistance. In a bearish market we know price look to turn support into resistance. On the larger time frames we have yet to see this happen to any major levels.
The first line in the sand the bears will be looking to break is the 3340 level this was last weeks look and has been a support level on the daily chart for some time. Before looking to short this bull market be sure the market structure is there, it takes more then 2 down days to change the structure of a market.
lets us know down below in the comments where you think price will go from here.
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