Wyckoff Spring Pattern Suggests A Temporary Market Bottom in S&P 500
On 24 February 2022 while Russia forces launched full-scale invasion of Ukraine, the 4 US major indices reacted negatively and broke below the previous selling climax support level created on 24 January 2022 during the Globex session. At the beginning of the US session, the indices started to rally strongly and closed at the high despite the bearish sentiment and the announcement of list of sanctions against Russia.
As shown in the chart above, a Wyckoff spring pattern showed up (annotated in the orange arrow) on 24 February 2022 when there was a temporary (intraday) break below the support followed by a commitment above. There was no follow through to the downside while the war between Russia and Ukraine is on-going. It is worth to pay attention when the market rises on bad news.
Reversal Pattern in S&P 500 Via Wyckoff Spring
The demand zone from 4200-4400 was formed since the selling climax low on 24 January 2022. This can be confirmed by the stopping action as reflected in S&P 500 (SPX) in the past 4 trading sessions. The Wyckoff spring action on 24 February 2022 is the biggest hint for a reversal sign, which was further confirmed by next day’s bullish momentum bar.
Now, S&P 500 is reaching the axis line (around 4380-4400) where the support-turned-resistance is expected to attract supply. A pullback could be expected as a test of the Wyckoff spring before further continuation to the next upside target of 4450-4600. The characteristics of the pullback and the volume are crucial to determine the quality of the next rally up. Refer to the Wyckoff method video to find out the details of interpreting the price action and the volume to predict the market movement.
Failure of The Reversal Pattern in S&P 500
Some pattern traders might argue that this is a potential double bottom, which could mark the market bottom (e.g. the low). However, judging from the health of the overall stock market, it is likely to have a final flush down like 2014, 2015 and 2018 to set the market bottom as demonstrated in the market breadth video. Based on the Wyckoff phase analysis, S&P 500 is likely at the beginning of phase B where volatility is still excessive to both sides, as shown below:
The sign of weakness started in November 2021 till the selling climax formed on 24 January 2022 paints a bearish background in the S&P 500. Therefore, the Wyckoff spring might not be extremely bullish to kick start a new uptrend. The characteristics from the price and volume while attempting to rally will provide us lots of clues to anticipate the future price development.
The key resistance levels for S&P 500 are 4400, 4480 and 4600. It is crucial to pay attention to how the price interacts with the key levels and the supply level as reflected in the volume. Should the support near 4200 fail to hold, a quick flush down could be expected.
Despite the bearish sentiment in the stock market, the Wyckoff spring as shown in the indices signals an upswing at least for now. There are also more buy signals (295) than sell signals (79) as shown up in my stock screener. Refer to the screenshot below:
Market volatility is expected to be greatly influenced by the war between Russia and Ukraine and the on-going sanctions against Russia. Risk management is extremely important to survive in this volatile market. Visit TradePrecise.com to get more market insights in email for free.