Weakness in the S&P500 While Cryptocurrency Lulls The Public to Sleep


Today we’ll dive into an in-depth analysis of the S&P500 with some extra notes at the end on the cryptocurrency market. We’ll look at the potential weaknesses coming into the S&P500 and Nasdaq, and show you where the market is expected to go next.

Technical Weakness in the S&P500 Market

The S&P500 has been on a steady upward trajectory since the start of 2023. However, there are signs the rally is getting tired. We’ll look at three strong reasons the market has topped, and five reasons to hunt for a price target.

The January Barometer

First, let’s review the January Barometer. The common phrase about the January Barometer is that “as January goes, so goes the year.” The market has followed the January Barometer closely this year, but now it’s diverging away from the forecast.

The January Barometer suggests a pullback around this time of year. However, the market has continued to charge upwards, so it’s overdue for a correction. Read more on the January Barometer here.

3 Reasons Why The S&P500 can Reverse From Here

1. Strong Market Structure Signal on the S&P500

At the bottom of the market, around October 2022, the market put in a powerful candle pattern structure. This pattern is called an outside-upside-key-reversal, also known as a bullish Key Reversal.

This pattern occurs when a bullish candle opens below and then closes above two or more candles. This signals a strong change of direction and reversal of market sentiment. After this signal came in, the S&P500 market headed into a strong bullish trend.

Now an opposite signal appeared in the market. An outside-downside-key-reversal. Also known as a bearish Key Reversal. This signals a weak market looking for a pullback.

2. Harmonic Objectives Suggest The End of the Move

Another valuable tool is the harmonic ABCD pattern. This is where the market price moves from A to B, then replicates the same percentage move from C to D. TRI teaches this concept as a part of the BOT trade setup in the TRI Level 1 School Program where you learn to trade that C to D move properly. You can use also use this harmonic trade setup as a powerful location tool and target signal in the market.

When markets reach the ABCD objective level, there is a high probability of a reversal. A variation of the BOT setup is the Alt ABCD pattern, which means the price can reach further extension levels before having its pullback.

3. Chaos Target Reached on Nasdaq

In recent years, Brian discovered how chaos theory, a fascinating mathematical concept, can be applied in trading. Brian showed that you can use the chaos number—i.e. Feigenbaum’s constant (4.669)—as an extension number, and measure from the right side of a “W” pattern, you can predict where the market wants to go, and when it will want to pull back.

You can see on the Nasdaq, the market rallied right up to the Chaos level, and that’s where it put in the market structure bearish "M" pattern. This combination (or confluence) of levels suggests that the market wants to pull back.

4. Momentum Indicator Confirmation

An important step in a trade process is looking for indicator confirmation. Here we are looking at two momentum indicators, RSI and MACD. Here we can see a clear divergance in momentum. Momentum divergance is when price goes one way, but momentum indicators move in the opposite direction. When price makes higher highs but indicators make lower lows, this suggests a reversal is coming.

Pro Tip: When momentum indicators confirm market structure by moving through the midpoint, this ‘confirms’ the divergence and makes it valid. (You can see from the orange lines how momentum is breaking down forming a bearish “M” shape.

Based on these four reasons, we have several technical trading reasons suggesting a pullback is imminent. What is the potential market pullback if it reverses?

Confluence Shows Where The Market Wants to Go

Confluence is a concept Brian and the TRI instructors teach in the TRI School. It’s when multiple indicators, patterns, and technical levels all suggest price will seek the same level. This confluence level becomes a magnet for the market and provides a strong entry or target location for trades.

5 Indicators Telling us Where The Market Wants to Go

1. W.D. Gann 50% Level:

In the TRI Level 2 program, students learn about W.D. Gann theories. This theory states that price likes to move to 50% of the entire range. To learn more about Gann theory, you can jump into the TRI School program.

2. 200-Day Moving Average (MA):

The 200MA is a common trading tool traders for showing support or resistance in price. If the price is above the 200MA, it’s assumed to be bullish, and if the price is below the 200MA, it’s bearish. The 200MA acts as a magnet attracting price, so it’s a useful tool to reveal where price is about to go.

3. 38.2 First Stop Target:

The 38.2% level is a common Fibonacci retracement level and taught in the TRI School as the ‘First Stop’ target. The market can retrace back to the 38.2% level anytime, while still keeping its overall trend.

4. Wykoff Check Level:

Since the end of 2022, the S&P500 has put in a huge market structure ‘W’ pattern. Wykoff theory suggests the market like to ‘check’ the mid-point of the ‘W’ and then continue its trend. To learn more about how a ‘W’ works, check out this blog on the anatomy of a 'W' predicting price action.

5. Volume Profile (VP) & the Point of Control (PoC):

The VP and PoC also suggest the market wants to pullback. Markets range 70-80% of the time and trend 20-30% of the time. After a long period of trend, it’s natural for a market to pullback or range. During a ranging market state, the price pulls back, fills in the VP, and price has time to set up the next big move.

These five reasons combine to show a strong confluence for a pullback. If you add these five reasons to the 3 topping signals listed above, we have a powerful list of reasons the S&P500 wants to pause here.

TRI Breadth Signal Saw it Coming

At TRI we have some incredible signals that give us early warning signs of market weakness. One of these signals is the S&P500 Breadth. The S&P500 Breadth gave us a bearish signal back in July and has been weak since then. To access these tools, just sign up for a free 30-day trial and try it for yourself.

Never Short a Dull Bitcoin

There’s a phrase Brian likes to use a lot, “never short a dull market”. If the market is trying to lull you to sleep, it’s going sideways, nothing happens, and there’s FUD (Fear, Uncertainty, Doubt) spread, then it’s a dangerous time to be short.

Bitcoin’s price movement has flatlined in the last few weeks. In dull markets where price flatlined, volatility can appear from nowhere and it’s dangerous for sellers to be short.

Benner Cycle Low Year

Remember, according to the Benner Cycle, 2023 is an accumulation year. We are around 6 months before the Bitcoin Halving event, a prime-time in Bitcoins cycle for a strong bottom. Read more about the Benner Cycle here.

Little Old Lady Accumulation Window

Brian and other traders at TRI have already started accumulating crypto names at the bottom ends of their ranges, as a part of the Little Old Lady strategy. This is a low-risk strategy that allows maximum of 5% of your capital on any one idea, and says that you must sell half of the position when the asset price doubles, so you get your original investment back.

The remaining position is called a ‘Free position’, meaning it’s risk-free now that you have your money back. For more information on using the LoL strategy, check out our blog on how to invest in cryptocurrency with the Little Old Lady strategy.

Dive into The TRI Library

There are so many concepts and ideas shared in this blog, and if you’re not a regular at TRI, it may seem overwhelming. If you want to get started and learn more about what’s inside this amazing site, I recommend checking out the TRI Library. You’ll find cheat sheets, trading setups, market videos, helpful images, TradingView scrips and more.

With a basic subscription, you get access to the Dashboard and S&P500 Breadth tool (shown above) and full access to the library and its wealth of valuable resources. You can try out the TRI community subscription for FREE for 30-days here.


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