Is the Grinch coming for this Santa Rally? $DIA $SPY $MAGS
Happy Sunday! If the Santa Rally is going to happen we need evidence of that! We are going to explore some charts to see where we might be headed short term and exactly how we can profit moving forward.
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Let's first take a long term look at the Dow Jones Industrial Index ($DIA) and the S&P 500 Index. We have chartered a scenario where we continue to be very bullish this market, but most recently we have seen some weakness resulting from the FOMC moves and more so on the last half of this week.
Right now according to this chart we will have a 29% gain from the previous 2021 highs to our Fibonacci Extension of ~$484.23 on the monthly chart, just a 7% gain from where are right now. Now, let's talk a look at the S&P 500 Index ($SPX or $SPY). We have not yet hit our long term target $6,432. We are nearly there though!
Next if we look at a short term chart (below), we have hit the 200% Fibonacci Extension and we are pushing up against resistance on the weekly trend line ($607.34 on the $SPY). Note while this is the monthly chat the weekly MACD has crossed below and is rolling over suggest a new short term downtrend is in place, and while not set in stone we do have 5 waves to complete a short term uptrend. So for now we are remaining a bit more cautious up here. And if we are starting to get more cautious what other evidence is there that we should be, look no further than the Magnificent seven stocks.
The term has been coined the Magnificent 7 ($MAGS) because they represent the biggest 7 stocks in the market that are most influential and high performing stocks in the the tech and consumer sector. Currently, these 7 stocks are Apple, Amazon, Alphabet (formerly Google), Meta (formerly Facebook), Microsoft, Nvidia, and Tesla. They represent over 28% of the S&P 500 Market Cap, so at any point in time you know we are monitoring what these stocks are doing and/or probably have a position in one or some of them.
So let's take a look at the $MAGS, or Mag 7 index to give us a clearer picture of what's goin on and some of the leaders.
We can see from the chart above that the majority of the gains come from these MAG 7 stocks, why they are so widely followed and why we want to be knowing how they are contributing directly to this bull market at any given time . We can actually chart all these stocks at once using the ETF $MAGS that tracks these 7 stocks and sure enough we can see over the past two weeks they have been hitting a Fibonacci extension!
Now we can see why the market has been pulling back as not only traditional stocks are going down, but the most important ones on earth contributing a 35% weighting to the sector! We can use the next chart below to see are levels for where we want to be shorting the MAG 7 or at least being cautious the overall market if they stop contributing to the market going up, which is $58. Also, looking at the chart below sure enough we can see a double top after a 5th wave up occurring meaning it could look like we have further to fall on this chart.
If we don't hold the 20 SMA tomorrow we are likely going down to the $52-$50 area which will setup some good shorts on the MAG 7 stocks. The reason I failed to catch this earlier is because we had what is called a shortened 5th wave up that sucks in new longs and keeps them trapped.
So even I got caught offsides Friday and had to liquidate several short term positions so I didn't let them turn into long term bags! Not to mention we were in several smaller companies that had been absolutely ripping. Which is important lesson to remember, despite any market environment we always need to error on the side that we are wrong so we do not end up buying the top or holding on to a bad position we cannot get out of.
So for now we are going to error on the side of caution as several of these high flying charts in the MAG 7 have started to breakdown and the S&P 500 short term targets have gotten hit. We'll look to short bounces until proven otherwise.
That's it for now, if you've enjoyed this post please be sure to share our service with friends or even if you have recommendations let us know! Happy weekend and don't forget to trade confidently!
Essex Trading Quote of the Day (#EsxQotD)
"The cure for the pain is in the pain."
~ RUMI
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