Futures dip, oil tops $100 as Iran reviews U.S. peace plan - what’s moving markets
Back on December 16th, in the middle of the euphoria, I anticipated a significant 50% retracement of the bull market that began in October 2022, targeting $4800. The low reached thus far has been $4835 . That accuracy is remarkable considering the provocative consideration when everything was in bullish mode. See Fibonacci analysis in the weekly chart:
The market is bouncing in a V shape, most of the move happened in April, and despite having recovered 65% of the selloff, price action still has a key milestone to accomplish in order to rule out any thesis about a bear market rally.
Why such consideration? Isn’t the bear behind us? Isn’t the worst behind?
The chart below shows the theoretical bullish candle from April, but at the same time, there are two elements to watch:
- A bearish MACD crossover is confirmed, far from reset, and at a higher level than the one from 2022.
- Previous bear markets have bottomed at the lower Bollinger band in confluence with the 50 monthly average, even the COVID crash in 2020 and the Tariff War 1.0 in 2018. The latest bottom barely made it to the 50 monthly average.
So the context is mixed, we see a completion of a Fibonacci pattern that suggests the bottom IS IN, and also a bounce from the 50 monthly average zone that builds on that thesis; on the other hand the MACD crossover is at a higher zone than 2022, and that year printed the highest MACD crossover.
Currently, the market is in bullish mode with signs of overbought conditions in the daily timeframe; the question is, how sustainable is that? If the market falls, where can an exit be set before it is too late?
SPX - Weekly Chart, Key Milestone Pending To Invalidate Bear Market, and Price Levels
The summary of learnings and subsequent considerations for the coming week and month are:
- A breadth thrust happened on April 24th, and the odds for higher levels than on that date ($5,484) are likely in 3 and 6 months; however, there is no specific growth standard. (at least 5% after three months, and 10% after six months).
- A revisit to $4,800 can be ruled out for the rest of 2025.
- A revisit to $5,200 has low probabilities, but it is the lower range of the few cases when the price fell notably after a breadth thrust (-5%).
- The key milestone studied in previous weeks to consider the bear market is over, is to conquer the 40-week moving average, currently at $5,746.
- What is the best way to stay out of the market if it falls? To use the central level to manage risk for longs. Next week, that level is sitting at $5,606.9, falling below that level with a conviction candle can be interpreted as a sell signal.
- Remember that the central level on February 21st was $6,081. People who used it as a trigger for a sell signal slept sweetly, dreaming, and had cash to buy during the first half of April.
- So what about the monthly MACD? Observe the COVID case, it reversed rapidly, but it doesn’t mean that the market will forget this signal. For now, the risk-reward favors the bulls, but in four to six months, the monthly price action has to be measured.
- And what about the hammer candle? That long, low wick suggests that price roared to recover the fall, reaching overbought levels in the daily and shorter timeframes (which is the case), and potentially followed by another monthly candle with a lower wick (not as long as April), showing a mild pullback before bullish continuation.
The SPX chart shows a bullish weekly candle that suggests continuation, however the 40 weekly average is close, and if it rejects the price, it can fall -1% to -2% for a normal technical reset, or it can go as low as -3%,-5%, or even -7%; and still staying in the regular range of the very near term after a breadth trust.
The recent bounce is solid considering oversold oscillators, price breaching below the lower band, and the conviction of the recent green candles. So the expectation for a visit to the 40MA is likely this week.
The daily timeframe is overbought with indecision candles and gaps, so for that reason staying prepared for a red opening of the week is crucial; hence the use of S/R levels: the $5,606.9 level is critical; holding it suggests a bullish path towards $5,780.5 (or $5,762 if the 40 weekly average truncates any bullish move); while a breach below $5,606.9 targets $5,513.
If there is any bullish overextension, the next bullish target to consider is $5,780.5. Bearish overextensions are less likely, but if it happens, $5,365 MUST act as support since it is the central monthly level, and after two bearish months, the price is finally above the central monthly level.
Support and Resistance Levels
On Saturday, April 26th, the Weekly Compass shared the following price targets for each security, and their accuracy by Friday, May 2nd was impressive:
