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We looked at the weekly chart of Wall Street back in November, and the weekly chart of the US 500 also shows some interesting point worth discussing.
First, we can see that following the sharp push higher from the pandemic induced lows the index has retraced 50% of the move. As is so often the case after a major move the market needs some time to consolidate around the 50% area of the move in order to digest and assess, if the lows or the highs of the move were correct.
Then second, from the test of the 50% support price action has posted a strong trend higher. As yet this can still be described as a bear market rally as the trend from the 2022 highs have been clearly lower, and price in recent weeks has only moved back to the resistance area of this medium-term bearish trend.
Opening up a major question. Can the markets push back to the 2022 highs, or has the move from the 50% support, merely been a bear market rally?
Clearly there are arguments for both cases, but technicians may remain muted on the prospects for the index until/unless this medium-term bearish resistance is broken. Price in recent days does seem to have struggled to find enough momentum to carry the short-term trend much higher without more support from fundamental data. We have the US CPI print for December due next week. This has the potential to cause rapid moves lower if it fails to have fallen in line with expectations. While a steep drop may be the catalyst required to allow technicians to drop the “bear market rally” tag and call the moves down to the 50% area as a major bottom.
So, traders do need to be prepared for possible extremely volatile period ahead as the situation on US inflation becomes a little clearer next week.
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