Fake Out Moves

The actions of US stocks during the week of 12/05/22 to 12/09/22 demonstrated several fake out moves.

The 12/07/22 blog noted that the S&P 500 (SPX) broke important support at 3,937.64 and that the first wave down of a larger bear move may have begun.

The 12/08/22 blog illustrated that the NYSE Composite (NYA) had a potentially bullish Elliott wave count.

The 12/10/22 blog noted that the NYA failed to break above important resistance and was close to breaking below important support.

Subsequently on 12/13/22 there was a big rally that pushed all three main US stock indices; S&P 500, Dow Jones Industrial Average, and Nasdaq Composite above their respective highs made on 12/01/22.

Fake out moves happen in all markets, there are  no certainties in trading/analysis  only probabilities.  Traders  must develop a mental toughness to overcome the frustration of fake out moves.  Remain calm and patient, fake out moves are the exception not the rule. 

Today 12/14/22 the FOMC announced their decision on U.S short-term interest rates.  The initial reaction of US stocks was bearish.

The daily SPX chart courtesy of Trading View illustrates price action from 12/14/21 to 12/14/22.

The bullish factors are as  follows.

  1. Stocks are seasonally bullish in December, if there’s a significant turndown its most likely to occur in late December or early January.
  2. On 12/13/22 the SPX broke significantly above the declining  trendline from the January 2022 top.

The bearish factors.

  1. Potential double top at SPX 4,100.
  2. The SPX top on 12/13/22 was 41 – trading days after  the 10/13/22 bottom. The 08/17/22 to 10/13/22 decline was 40 – trading days.  The 06/17/22 to 08/16/22 rally was 40 – trading days.  A  potential Fibonacci time ratio of equality of the three market movements.

Important levels  to watch are  the SPX 12/13/22 top at 4,100.96 and the SPX 11/17/22 bottom at 3,906.54.

Published by Mark Rivest

Independent investment advisor, trader, and writer. Articles have appeared on Technical Analysis of Stocks and Commodities , Traders.com Advantage, Futuresmag.com, and Finance Magnates.

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