US stock markets hit downside targets after we predicted a correction
We warned of a high in Emini S&P in our three articles over two weeks starting with this on 25 February: ‘Emini S&P is now testing both five-week & 13-week trend line resistance at 2115/20 with seven-month trend line resistance at 2125/30. Will this mark the high for the bull market?’
In the last two articles I have looked into some of the potential clouds on the horizon for global stocks and of course this week we have seen the strong dollar and potential interest rate rise hit sentiment.
On Monday I wrote: ‘At the moment we have only witnessed a one-week correction in a very strong bull trend. Although I do worry about the long-term situation, in the short term there is no indication of a collapse. If a more serious sell-off in stock markets is going to take place this year, it is likely to take weeks to build a negative pattern. There is plenty of time for the market to warn us of which direction it intends to take next. Therefore at this stage I’m looking for this small short-term correction to initially offer a buying opportunity. I expect further weakness this week, but will be looking for a bounce back from important support levels.’
Now our downside targets for the US stock market correction have been hit and we could start the recovery. This is what was written in my daily reports:
Emini S&P we wrote on Tuesday 10 March: ‘…the outlook remains negative so we could continue lower to good support at 2065/63. Again this is key to direction of course and should hold initially but we must be ready to go with a break lower to target 2053 then strong support at 2047/45. A low for the day expected so buy with stops on a move below 2040.’
Once Emini S&P broke good support at 2065/63, which had actually held perfectly for two days, as we hit the next target of 2047/45. As I write we have bottomed above 2041 and we do look for the end of this short-term correction now. The big question is how far the recovery goes – is this the start of a new bull leg higher or will the bounce start to form a more negative longer term pattern? Only time will tell now.
Emini Dow Jones we wrote on Tuesday 10 March: ‘The overdue correction we looked for last week appears to have started… outlook remains negative and we could continue lower to 17,915/920 then 17,885/880. If this does not hold the downside look for a retest of two-day lows at 17,817/811 with strong support at 17,790/770 just below. A good chance of a bounce but be aware a break lower is a negative sell signal and targets 17,720 then important longer-term support at 17,685/675. It could be worth trying cautious longs here…’
Emini Dow Jones collapsed as predicted on Tuesday breaking strong support at 17,790/770 for an added negative sell signal and we hit more downside targets until important longer-term support at 17,685/675. We did overrun just a little to 17,656, but very quickly recovered above 17,685/675.
There is a very strong chance that we just witnessed the end of a short-term correction as we hold strong support. We had been calling for this correction over the past two weeks and our targets have been hit. We now look for the bull trend to resume.
Emini Nasdaq we wrote on Tuesday 10 March: ‘…outlook negative and below 4410 adds pressure to target excellent support at 4395/90, which is key to today’s direction. This could hold the downside initially at least but we must be ready to go with a break lower to target 4376/73. If we continue lower look for 4362/57 then 4348/45 before strong support at 4332/31. Buy with stops on a move below 4317.’
As predicted the Emini Nasdaq collapsed on Tuesday breaking 4395/90, to hit all targets down to strong support at 4332/31.
Emini Nasdaq could now continue to hold strong support at 4332/31 and end this short-term correction. A recovery into mid-to-late March appears likely now.
Mini Russell we warned on Monday: ‘… last week hit a new all-time high at 1243.60, but wiped out the previous week’s gains by the close of business. This starts the week on a very negative outlook, with further losses expected after we have been warning of long overdue correction over the past two weeks.’
We wrote on Tuesday 10 March: ‘…we could continue lower to retest support at 1215/14. A break below here looks more likely for a short-term buying opportunity at 1208/07. A bounce from here is expected initially at least but longs need stops below 1204.’
Mini Russell headed lower exactly as predicted on Tuesday and did break 1215/14 as forecast for a short-term buying opportunity at 1208/07, with stops below 1204. We did dip as far as 1203.50 but this should not have been enough to trigger stops and we have already bounced to 1212. We look for further recovery today but must beat 1212/13 to target resistance at 1218/19.
FTSE we wrote on Tuesday 10 March: ‘…headed lower as expected with the outlook more negative but good support at 6782/77 has not held and we have hit 6747. If we now hold below 6782/77, as looks likely, we should retest 6747 then break lower to target 6734/30. A bounce from here is possible as we become oversold short term but a break lower cannot be ruled out with the negative outlook and targets 6705/00. If we continue lower strong support at 6680/75 is a buying opportunity at this stage, with stops below 6660.’
FTSE did hold below 6782/77 on Tuesday and break 6734/30 as feared with the negative outlook and hit targets of 6705/00 then strong support at 6680/75 for a buying opportunity.
We bottomed exactly here and a strong chance this will mark the low for this two-week correction. Although the longer-term outlook remains negative we could see a short-term recovery to target 6735/40, 6780, 6810 and perhaps as far as 6845.
Technical Analyst & Trader
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