From Hao Sun at Trade with Precision:
Almost every week over the past three years, I hear people calling the top of US stock market. Especially over the last 2 days, with the devaluation of the Chinese Yuan which has triggered risk aversion around the global stock markets. I have recently heard from a fellow trader that “the US market has been going up for 7 years in a row now since the bottom of 2008. Based on the economy cycle, anticipation of 1st interest rate increase by Federal Reserve of USA and China economy slows; it must be the start of the bear market.” My question is, is it really the end of the rising market?
Before I answer this question, let’s go back in history to see if any similar circumstance in the past can give us any clues. In August 2011, Standard & Poor removed, for the first time, the USA’s triple-A rating which it held for 70 years. Bad news was spread across the media – TV, newspaper, radio etc. telling everyone who cared to listen to dump any and all US stocks. But what was the result of the downgrade? In actual fact it set a solid foundation for one of the longest bull runs in US stock market history. The US debt ceiling crisis in 2013, the quantitative easing exit concern in 2014 (a massive selloff triggered in early October 2014), none of this so called “bad news” has been able to stop the raging bull. Instead these shakeout events have provided investors and traders with great opportunities to buy.
The situation right now is similar, isn’t it? A smart investor/trader should see through the news and understand the REAL purpose of the news and not to be duped by it. A technical chart will tell us how the market participants react to the news – this is what I like to focus on. The Chinese Yuan has riled the stock markets over the past 2 days but was it really bad news after all? Today, following on from this news, the three major US indices have printed strong rejection candles on the charts – meaning that price has rejected a move lower and may indicate that the ‘smart money’ and professional buying may be present in the market. These savvy market participants seem to have been accumulating their US stocks on bad news - a common practice by smart money since the beginning of the US stock market back in 1700s.
The longer term view, the uptrend of the three major US indices still remains intact with price inside or very close to the monthly chart moving average buy zone. So I am anticipating another push to the upside in the coming weeks / months after the summer lull in the northern hemisphere.