The stock market took an unexpected hit on Friday, with indices dropping as much as 1.8% in what appeared to be a sentiment-driven selloff rather than a response to specific news. This sudden downturn, particularly impacting high-flying stocks, deserves a closer technical analysis to understand what might come next.
Market Technical Analysis
The current market structure presents an interesting technical setup, particularly in the form of a diamond pattern that demands attention. While we typically give the benefit of the doubt to the bulls, Friday’s depth of pullback was notably severe, catching even experienced traders off guard.
Key Index Analysis
- S&P 500 (SPY): The index has essentially moved sideways since early November, showing signs of potential weakness. A possible head and shoulders pattern is forming, though we need confirmation before acting on this setup.
- Russell 2000 (IWM): Currently displaying bearish characteristics with a clear downtrend in place. The bone zone indicator between the 9 and 20 EMAs confirms this bearish bias on multiple timeframes.
- Nasdaq (QQQ): While maintaining an overall uptrend, the formation of a diamond pattern suggests caution. This technical structure could break in either direction, making proper entry timing crucial.
Top Trading Opportunities
Several stocks are presenting interesting setups despite the market uncertainty:
1. IONQ
Currently trading in a defined channel, with potential support at the 43 level. The hourly chart shows consistent bounces off the 50 EMA, suggesting a possible long entry point if market conditions stabilize.
2. JOBY (Electric Aviation Play)
Showing remarkable strength despite the broader market weakness. Multiple tests of resistance with an inside day on Friday suggest accumulation. The setup mirrors the recent movement seen in ACR, which saw a 400% move.
3. AVGO (Broadcom)
Presenting a potential “buy the dip” opportunity after an inside day following four days of uptrend. The 1.5% pullback appears healthy after the recent strong move, with key resistance at 250.
4. META
Demonstrated resilience by bouncing off the 50-day moving average with a hammer candle formation on the intraday chart. The strong close on Friday, despite market weakness, suggests potential upside momentum.
5. RBLX (Roblox)
Watch for either a pullback to range support for swing trading or a breakout above 60-61 for day trading opportunities.
6. LULU
Simple breakout setup watching the 390 level, with clear technical parameters for entry and exit.
Trading Strategy Moving Forward
While the market’s sudden weakness demands caution, it’s essential to maintain a balanced approach. Here are key considerations:
- Reduce position sizes until market direction becomes clearer
- Focus on stocks showing relative strength
- Wait for clear setups rather than forcing trades
- Keep watch lists concentrated on the highest probability setups
- Consider both long and short opportunities as the diamond pattern resolves
Conclusion
Friday’s selloff, while significant, doesn’t necessarily signal the end of the broader uptrend. However, it does suggest the need for increased vigilance and more selective trading. The key will be watching how the market opens next week and whether the diamond pattern resolves to the upside or downside.
Remember, in times of increased market volatility, patience and disciplined trading become even more crucial. Keep your positions sized appropriately and wait for clear technical confirmations before entering new trades.
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