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Technical Green Shoots?

Green Shoots. This is a term that is commonly used to describe signs of an economic recovery or improvements during a business downturn. The term is a reference to plant growth and recovery. In the financial markets it is a reference to the economy showing signs of improvement and stabilization. So, is this week’s market action offering initial signs of technical green shoots?


Yes, key U.S. stock market indexes are showing indications of technical green shoots this week. After one the most volatile periods in history, daily gaps (3/24/20) have appeared across major U.S. indexes including SPX, INDU, COMPQ, and others. In addition, important weekly reversal patterns have developed in the above key indexes this week (3/23/20). A strong close above its prior week’s weekly high (3/16/20) by the end of the week (3/27/20) would confirm these weekly reversal patterns.


The above two bullish developments hint of the start of a recovery process possibly toward the 38.2%-61.8% retracements from Feb-Mar 2020 decline. However, technical damages have occurred during the recent bear market decline (i.e., death cross sell signals, violations of uptrends, key retracements broken, etc.). Many bear markets that are not V-type recoveries often require time to repair the technical damages incurred during the bear decline and most important, a credible technical base needs to develop before the next major bull run.


Enclosed below are the three key U.S. indexes and the technical green shoots:


S&P 500 Index (SPX – 2,630.07)


A positive outside week in SPX if confirmed by the end of the week is the first major intermediate-term reversal pattern over the past month or so. This hints of an SPX rally to key initial resistance at 2,651 (38.2% retracement from Feb-Mar 2020). Above this, can extend the rally toward 2,793 (50% retracement) and then to 2,934 (61.8% retracement). However, a weekly death cross sell signal (3/16/20) still warns of continued volatility over the near-to-medium term. A broadening top pattern also warns of further technical base is necessary before a sustainable longer-term bull trend can occur. Based on the above technical developments it is likely that an intermediate-term trading range will develop between 2,104 and 3,095 (bottom and top of the broadening pattern) over the near-to-medium term.


Dow Jones Industrial Average (INDU – 22,552.17)


Although INDU has violated the bottom of its broadening top (below 19,531) the daily gap up on 3/24/20 (19,121-19,649) as well as the potential for a positive outside week this week is technically constructive. These technical green shoots suggest an INDU rally to 38.2% retracement (22,551), and above this to 23,891 (50% retracement), and then to 25,231 (61.8% retracement). A weekly death cross sell signal (3/9/20) and a 2-year broadening top pattern still warns of further volatility. A technical basing effort between 19,531 and 27,828 (bottom and top of broadening pattern) is probably required before the start of the next sustainable longer-term bull trend.


NASDAQ Composite Index (COMPQ – 7,797.54)


Two potentially constructive technical developments this week including a daily gap up (3/24/20) and a positive outside week, if confirmed by 3/27/20, suggests an COMPQ rally to 7,856.5 (38.2% retracement), and above of this to 8,235 (50% retracement), and then to 8,613 (61,8% retracement). Since the 10-wk and 30-wk ma (8,699/8,573) are contracting near its 61.8% retracement this warns of formidable intermediate-term resistance on any subsequent COMPQ rallies. Nonetheless, key initial support rises to 6,985-7,170 (3/24/20 gap up), and below this to 6,631.42 (3/23/20 reaction low).


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

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