Sentiment is one of the largest drivers in the market. Technicals and sentiment outweigh fundamentals.

So, what’s going to happen this week as Jerome Powell prepares to try and screw us all?

I’ll just say it: I don’t care what JPOW says tomorrow. I just don’t. I’m not even going to watch.

It’s out of his hands. It’s now in the hands of market sentiment.

I’m more concerned with where the market’s going over the next 4-6 weeks. Jerome Powell’s not going to have any control of that. This market’s already set its course.

So, with that being said, it’s a good time to pull up a couple of charts to help make sense of the current market…

This is the Sentiment Cycle chart, where you go through four different stages of a bear market.

The left side is the one we’re worried about, because that’s the side we are in the middle of right now.

Disbelief is where we’re kind of trying to come out of currently. The market has found a way to rationalize everything that Jerome Powell, the Biden administration, and the Inflation Reduction Act has said.

All of this has led to us being able to cast a doubt on whether or not the market’s going to continue lowering.

That disbelief stage is just a hard one to get out of.

We just saw the market go up 10% or so in June and July, so people will say, “Oh, there’s reason to believe it will happen again.” But it usually only happens once in one of these cycles…

And then, all of a sudden, that “reason to believe” snags them up, and the market moves lower. Until, finally, it turns to the acceptance stage.

That’s where everybody’s going to start selling everything. We’re already seeing the companies that nobody wants to sell – AAPL, GOOGL, META, NVDA, MSFT – starting to be sold, along with bonds and crude oil prices.

For what it’s worth, the FedEx comments last week were pretty damning, because it suggests there’s a global – global – recession headed our way.

The consumer is just as active as they were two months ago, but they’re spending more on their credit cards.

“So, if consumers are still spending, how are we going into a global recession?!”

Well, because consumer credit is now getting railed up the same way that it did back in 2008 and 2009.

We’re not holding cash anymore; all of that money is gone.

It just goes to show the gymnastics people do to keep denying the reality of the market.

The traders, the analysts – they’re all trying to set that tone.

So, keep in mind, earnings preseason is here. Here’s how you know where you’re going to be trading for the next couple of weeks…

Before you look at this chart, file this away – today’s word of the day is “pre-choreographed.”

This is the Tulipmania chart, which shows the contract prices for tulip bulbs during the Golden Age.

But we don’t care about tulips – we care about this because it’s often used to reflect the general cycle of a bubble.

You’ve got that bull trap that’s right up there at the top, and then the return to normal, which is what we felt over the past couple of weeks (or even months).

Then you get the next move down, which starts with another round of fear that’s filled by capitulation, and that takes us down to the bottom – despair.

That’s what you’re looking at. This is the choreograph. This is the plan. This is the other team’s playbook.

So, how do we trade our way out of it? What do you watch over the next week or two?

Let’s bring it back to the technicals… which are going to be simple for everyone at this point…

The easiest thing you can do as a technician is to start looking at round numbers.

On Friday, we hit 3,900 on the SPX – and this is a number we’ve heard all of the media and analysts watching for the “must-hold” level.

$3,800 is next, $3,700 likely by end of next week – and then, keep your eyes on the big double bottom of $3,600 in a few weeks.

Then we’ve got the QQQ.

That orange line is the line of demarcation between the bull and bear channel that extends back to January 2022. We break below that $280 level, that takes you right through the median of those channels.

$270 now becomes the peak in terms of put-open interest. In the next few weeks, as we get through the second round of earnings, we could start to see $250 come into play.

I just gave you the exact play, the choreograph. All round numbers.

After that, you have to look to the sectors and stocks that have been “holding back” or resisting the move lower after clearly falling into the bear trap.

The three sectors that I look at right now – the deep-denial trades – are XLB, XLY, and XHB. These are the ones I want you to watch the most.

This is going to be the target-rich environment that I am going to take on and do what I used to call hand-to-hand-combat trading. Those are the three that I’m going to be taking down further.

They are actually being affected by all three things that I like – the technical, the sentiment, and now the fundamentals are coming in to hit them.

When that happens, when I get all three – it’s lights out. It’s a real fun time.

Be sure you’re along for the ride.

Talk soon,

Chris Johnson
Quantitative Specialist, Penny Hawk


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