What's Next for Stocks After Friday's S&P 500 Double Bottom?
Before jumping into a highlighted trade from this week, let's look at the S&P 500 to see what's next.
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Chart of the Week
Today was a classic, intraday double bottom. So what’s next?
First, what is a double bottom? It’s a W! See it? I’ve highlighted it in the yellow box. The price of the S&P 500 dropped to around 5850, rallied a bit, tested that low, and then blasted off. Wapow!
Now, that’s a short-term, intraday chart using 1-hour candlesticks. So, it doesn’t necessarily mean we should expect new highs. In fact, this pattern offers a target price. Take the low of the pattern, around 5850, and subtract that from the midpoint of the W, around 5900. That’s 50 points. Add that to the midpoint of 5900, and you have a target of 5950.
Hey! That’s where we closed today. So what’s next?
Let’s zoom out and look at daily candlesticks.
This chart has two indicators that I’ve mentioned recently, Bollinger Bands and the 125-day simple moving average.
A couple of weeks ago, I mentioned that the Bollinger Bands had narrowed to the point where they forecast an increase in volatility. Well, they were right. And the market fell by 4.5%, to the 125-day moving average.
The 125-day average (in green) remains upward sloping, which I mentioned earlier this week is bullish. It was also a big volume day. Short covering? Dip buying? I just don’t know.
What I’m watching, however, is to see what happens next. If there’s a follow-through on Monday, I could see the market rallying to 6040, near the 20-day SMA. If Monday is a down day, we test 5840 again and then 5800.
Remember, we’re still in a bull market, we’ve mostly gone sideways since the election and lots of bear markets start with multi-month sideways tops.
AXON Was a Big Winner This Week!
Chris Versace called up shares of AXON from the bullpen in advance of the company’s earnings announcement on Tuesday. He suggested members buy around $497 and when we logged in the next morning, shares had traded as high as $600! Nimble members might have taken those profits already. Others, including Chris are in it for the long run and Chris has raised his price target to $625. Yesterday, AXON fell with the rest of the market, but Chris remains confident. After all, shares closed the week up around 6% from where he bought them on Tuesday.
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