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WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK
Short-term trend (DAILY CHART) – LOWER. SPX retreated for the fourth week in a row, this time from 4392 to 4271, a painful 121-point pullback. Friday was especially harsh as the Dow fell by nearly 1000 points (the biggest daily loss since 2020). The SPX daily chart is downright ugly as SPX plunged below its 50-, 100-, and 200-day moving averages. Futures are lower on Sunday night, but that could change in the morning.
Long-term trend (WEEKLY CHART) – LOWER. Those with a longer-term perspective may seek some solace in the weekly chart. On the weekly, SPX remains below its 50-day moving average (a red flag), but has not dropped below its 100- or 200-day. The bulls still have a chance to recover this week, but it may be volatile over the short term.
MACD (WEEKLY) = LOWER TO FLAT. The WEEKLY MACD has fallen slightly below the zero line and the 9-day signal line. Not pretty.
RSI: (S&P 500) @44.53 (DAILY) OVERSOLD. RSI on the DAILY chart is oversold but not at extreme levels (below 30). If the indexes keep falling, expect a snapback rally at some point (but no one knows when).
Daily Intraday Volatility (VIX) = 28.21 = HIGHER: Option traders woke up to a selloff on Friday and bought loads of put options. The pop in the VIX reflects that a touch of fear has entered into the hearts and minds of option traders.
Comment: For the fourth week in a row, the indexes have fallen. Although there was a one-day wonder rally during the week, the bulls could not hold their gains. Even more ominous, the indexes rallied in the morning on some days, but reversed direction by the end of the day. Failed rallies are a negative sign.
It is too early to say where the market is headed but it is safe to say we are entering treacherous waters. Many experts believe the spike in interest rates (over 5 percent) helped to punish the bulls, and maybe the experts are right. It’s not helping that the Fed is hinting that interest rates may move much, much higher next month (i.e., 50 to 75 basis points). 75 basis points?
Perhaps Fed Chairman Powell is just “jawboning,” because a 75 basis point increase would shock the financial markets. (Maybe next month Powell will change his mind (“I was just kidding!”) Then there should be a relief rally.
It didn’t help market sentiment when Netflix fell by over 36 percent in one day. Less than a year ago, Netflix was trading at $700 per share. Now it’s at $215. That hurts.
After a one-month pullback, expect to hear a lot of complaints and concerns from investors. No one is panicking yet because they “expect” the market to rally back. All we can do is watch, wait, and observe the technical indicators and other clues. The indicators are telling us that it’s been an ugly month but there is still a chance for the bulls to win back the week.
Bottom line: Unfortunately, the easy days are over for now. You will have to work for your money if you are in this market.