Markets Topping or Consolidating - Trading Journal (12.22.20)

In the real economy data is showing signs of slowing down. There is no hidden message here, the economy is not well and since reopening it has yet to be any where close to pre-covid conditions. I probably have posted this type of negative sentiment with the real economy for the thousandth time but its the reality.

With that how will the equities markets do further down the road?

A quick look at /ES, SPY futures, it is clear than lower highs are being made. Potential to see further downside and the lines below to watch for are 3650 and lower at 3600. Yet the night is early as /ES trades overnight and it could potentially make a higher lower.

However extend the chart on a longer time frame it is clear that price was extended to the upside for some time and now it appears to be consolidating. Either it stays within a range or it will break down is the more likely outcome. Why? Well /ES hit 3720 last Friday and a few weeks before that only to both times fail to break higher. There is some resistance at that level while below the supports have not even come close to being tested.

First gap is the 360-365ish on the SPY. All the gaps in October to early November also have yet to be tested. It is not to say markets are going down from here, but the more likelihood a retest appears to be on the horizon. If it just be a consolidation period then likelihood by early January SPY could break out to all time highs. Eventually it be up or down, just a matter of when? I have my playbook ready to close longs if SPY fails to hold 360. However I would not be shorting as I do not see any form of bad news that could bring the markets down significantly. Reminder we just when through a complete country shutdown.

Thanks for reading!

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