2018 was certainly one of the most problematic years for all the international indexes, since the beginning of the great experiment led by all the main central banks of the planet – which have flooded financial markets with liquidity from 2008/2009 till the present time, used above all to inflate any paper asset.
After reaching new highs in January 2018, almost everywhere in the markets, volatility exploded again from February onwards, with medium-term structures immediately affected by the strong pressure triggered by sellers.
While the situation on the European indices then steadily deteriorated, to the point of aligning negatively all the main time frames, an event that led to the violent downward movement from the end of September to the end of 2018, instead, the positive situation on the American indices restored at the end of April then led to continuous new record highs until the end of September, de facto creating a decided misalignment between American indices and European indices.
The last quarter of 2018, however, turned out to be one of the worst in the history of American indices, with December that had not been seen since 1931 and S&P 500 losing 20%, arriving very quickly to test an important support level of the weekly/monthly control box – dynamic support calculated by our software – at the area of 2250-2370.
From the test of this important area, which took place during the Christmas holidays, the buyers did not hesitate for a moment to arrive determined, causing the most classic V-shaped movement, which in just 10 weeks brought the prices back to test the important resistance level at 2800-2820. In this area, sellers have begun to feel resentful, but without going towards a physiological and healthy correction, at least for now.
As long as the price of S&P 500 remains above 2615-2670 of weekly candle close, there will be no possibility of reactivating strong selling pressure. At the same time, traders also should pay attention to the Vix and its possible exceeding of 18-18.5.
However, as long as SP500’s level 2800-2820 resists – and the key indicator does not return in strong buy – there will be no possibility for SP500 to resume the bullish path able to score new historical highs.
The second quarter of 2019 is absolutely essential to understand what to expect in the second half of the year.