The Inverse Head & Shoulders on the Road to SPX 4,000
On October 17, Morgan Stanley equity strategist Mike Wilson said inflation peaked, and that the S&P 500 (SPX) could rally to 4,000.
If you remember that time, the mood was super bearish.
So the market was taken off-guard by Wilson's bullishness.
Now when someone smart comes out bullish, I don't just buy – I go to the charts. Because an opinion is just an opinion until the chart confirms it. That's why I use tools like moving averages and trend lines.
So let's break down the move.
First, the SPX broke below 3568 to hit a low of 3491 on October 13. That was two trading days before Wilson's call on October 17.
Next, the SPX rallied off the 3491 low and held above the 3568 where the neckline of the inverse head & shoulders was forming.
The SPX then declined for 3 days into October 21, which was a massive day because there was a powerful Red Dog Reversal long signal.
The SPX also cleared the descending trendline in short order after that:
Next, the SPX dipped to 3698, which held. That put in the right shoulder of the inverse head & shoulders:
Then we had the big CPI report on November 10.
The CPI came in cooler-than-expected, which set off a round of being.
The SPX ignited through 3911, which was the high on November 1.
And finally, the SPX hit a high of 4028 on November 15 when the PPI report was lower-than-expected:
Remember, the biggest topic on traders' minds was inflation, so two straight light inflation readings really put the bears back on their heels.
The lesson here?
Listen to smart people.
But match what they say against what you see in the charts.
We followed this move every day in The Redler Report, which helped us find great swing longs in names like SPY, UAL, JETS, TLT, and JPM. Not every idea works, but when you get the overall trend right, things tend to go your way.
So maybe you should think about joining up!
Scott Redler's Positions Disclosure as of 2022-11-16 at 2.08.35 PM
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