TWO NEW BOOKS COMING: On May 24th, 2022, my two newest stock market books will be released. Here is the link to Understanding Stocks (3rd edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Market: https://amzn.to/35lnjQy . Both are excellent books.
WHAT THE INDICATORS ARE SAYING
This is what the technical indicators are telling us this week:
Short-term trend (DAILY CHART) – FLAT. SPX was as flat as a pancake last week, moving from 4543 to 4545. In the trading world, that is consolidation. On the daily chart, the short-term sell-off was stalled as the market catches its breath. On the daily, SPX is above its 50-day moving average, which is positive. FUTURES are flat to lower on Sunday night, but that could change in the morning.
NOTE: On the daily chart, the 50-day crossed below the 200-day, another name for the Death Cross. There are pros and cons to this lagging indicator, which will be explored in a future column.
Long-term trend (WEEKLY CHART) – HIGHER. On the weekly chart, SPX remains above its moving averages. The longer-term weekly chart gives us a broader view of the market (50-week, 100-week, 200-week, etc.). While the short-term chart is volatile, the long-term view is positive.
MACD (WEEKLY) = FLAT: The WEEKLY MACD has stopped retreating and is stalled at the zero line. It could go in either direction but the worst may be over (for now).
RSI: (S&P 500) @57.27 (DAILY) SLIGHTLY OVERBOUGHT. RSI on the DAILY chart is pointing to a short-term overbought condition but it’s not at extreme levels.
Daily Intraday Volatility (VIX) = 19.63= NEUTRAL: Calm has returned to the options market as option speculators have stopped gobbling up put options for protection. As a result, the VIX continues moving to more “normal” volatility levels. Result: The nervousness of a few weeks ago has been forgotten.
Comment: SPX appears to be consolidating in the short-term, while still pointing higher in the long term. Market participants are being lulled into a feeling that “everything is okay.” Until there is evidence of a reversal, most investors are going to stay the course.
Last week could have been a whole lot worse but “window dressing” saved the day. Window dressing refers to the last few days of the month when fund managers dump their losers and buy winners. As a result, certain stocks go to the moon during the end of the month while losers are severely punished.
It is unclear which direction the market will go this week. After a two-week rally followed by consolidation, the market could go in either direction. Bad news is swirling around including higher interest rates, inflation, higher gas prices, and a war. Even though Friday’s job numbers were fantastic, inflation is making many people feel broke. It’s a very mixed bag.
Bottom line: No one can predict which direction the market will go this week, and I won’t even try. It’s a very tricky trading environment, and anything is possible. If trading, be extra careful as it’s easy to get whip-sawed.