Stock Market & Crypto Analysis for Week Ending 1/26/28

Market Analysis - January 23rd, 2024 - Brian Shannon (altrends.net)

Key Concepts:

• Anchored VWAP (Volume Weighted Average Price): A technical indicator showing the average price paid for an asset over a specific period, anchored to a significant high or low.
• Measured Move: A technique used to project potential price targets based on the magnitude of a prior price movement.
• 200-day Moving Average: A widely followed technical indicator representing the average closing price of an asset over the past 200 days, used to identify long-term trends.
• Head and Shoulders Pattern: A bearish chart pattern indicating a potential reversal of an uptrend.
• Tariff Impact: The influence of trade policies and tariffs on market sentiment and stock performance.
• Earnings Season: The period when publicly traded companies release their quarterly financial results.

I. Broad Market Overview (S&P 500)

The S&P 500 remains above its 50-day moving average, which is well above the 200-day moving average. However, the market is significantly extended from the 200-day moving average, suggesting a potential pullback or sideways consolidation. Brian Shannon believes a prolonged sideways movement allowing the 200-day moving average to “catch up” is less likely than a correction. The S&P 500 closed above the year-to-date anchored VWAP, viewed as a positive sign potentially indicating a shakeout below the 50-day moving average. The anchor point for this VWAP is the low observed in the chart.

II. Sector Performance

• Biotech: The strongest performer, up 3% for the week, indicating continued strength.
• Financials: Continued to decline, exhibiting lower highs and lower lows. A test of the 200-day moving average (around 5250) is anticipated, aligning with a green anchor point originating from April’s trading flows.
• Cryptocurrencies: Experienced a downturn, with Bitcoin, Solana, and XRP facing significant pressure.
• Energy: Demonstrated strong performance, described as being in “runaway mode,” with a significant breakout on the weekly chart. Energy stocks are leading the commodity (oil).
• Semiconductors: Took a “breather” but remain strong, consistently trading above rising 20, 50, and 200-day moving averages and above the year-to-date anchor.

III. Commodity Analysis (Crude Oil)

Crude oil rallied to the 200-day moving average earlier in the year but pulled back to the conjunction of the 20 and 50-day moving averages, finding support. The price is now “pinching” between the 50 and 200-day moving averages. A break above the 200-day moving average and the anchor from last June could lead to an upward objective near $65 (A to B to C to D measured move). Energy stocks are currently leading the commodity’s performance. Recent news from Iran could introduce volatility.

IV. Cryptocurrency Deep Dive (Bitcoin, Solana, XRP)

• Bitcoin: Struggling with the anchor off the November low and remains below the year-to-date anchored VWAP. Repeated tests of support suggest a potential breakdown towards the $78,000 - $80,000 level. A head and shoulders pattern is identified, potentially indicating a move down to $45,000 (though Shannon doesn’t consider this realistic). He advises caution, noting that bullish commentary often comes from those with vested interests.
• Solana & XRP: Both are exhibiting weakness, with XRP breaking down and approaching the anchor from its Coinbase trading inception.

V. Individual Stock Analysis

• Apple: Touching the anchor point and attempting to stabilize, but stabilization doesn’t guarantee further gains. A potential breakdown and continuation of the downtrend is possible. Shannon wouldn’t be a buyer while the 5-day moving average is declining.
• Netflix: Found buyers at the anchor point off a previous low (around 8150), potentially offering a long-term position with a stop-loss below that level. He anticipates consolidation after any potential rally.
• Palantir: Has shown no significant movement year-to-date.
• Meta: Recovered nicely and is a stock to watch during earnings season.

VI. Trading Strategy & Outlook

Shannon expresses a preference for a slight pullback in the S&P 500 towards the 5-day moving average to build strength before continuing higher. He notes the market has been consolidating with higher lows, with the 20-day moving average above the 50-day moving average. He emphasizes the importance of paying attention to earnings reports next week, as they will significantly influence individual stock performance. He cautions against blindly following bullish narratives, particularly in the cryptocurrency space.

VII. Technical Frameworks & Methodologies

• Measured Move: Used to project price targets for the Russell 2000 and crude oil.
• Anchored VWAP: Utilized to identify support and resistance levels in the S&P 500 and Bitcoin.
• Moving Averages (5, 20, 50, 200-day): Employed to assess trends and potential support/resistance areas.
• Chart Patterns (Head and Shoulders): Used to identify potential reversals in Bitcoin.

Notable Quotes:

• “We’re at the beginning of earning season. Next week, it really kicks off. That’s going to determine the fate of a lot of these individual stocks.” – Brian Shannon
• “Don’t listen to people whose job it is to buy up all the the Bitcoin that they can or Ethereum that they can afford. Of course, they’re going to be bullish. They have to be bullish.” – Brian Shannon

Data & Statistics:

• Biotech sector up 3% for the week.
• Potential S&P 500 support level at the 200-day moving average.
• Anticipated financial sector test of the 200-day moving average around 5250.
• Crude oil potential upward objective near $65.
• Bitcoin potential breakdown towards $78,000 - $80,000.

Conclusion:

The market presents a mixed outlook. While the S&P 500 remains in an uptrend, it is overextended and vulnerable to a pullback or consolidation. Sector performance is varied, with biotech and energy leading, while financials and cryptocurrencies struggle. Earnings season is expected to be a key catalyst for market direction. A cautious approach, focusing on individual stock analysis and paying attention to key technical levels, is recommended.