Bullish or Bearish? Week of July 11, 2022

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Short-term trend (DAILY CHART) – HIGHER. Last week, SPX rose from 3825 to 3899, a healthy 74-point rally. Volume was on the low side, but at least we didn’t go backwards. The indexes are still below their moving averages. The 50-day MA is now acting as resistance. We will wait and see if it can rise above it. Futures are FLAT on Sunday night but that could change in the morning.

Long-term trend (WEEKLY CHART) – FLAT. The major indexes on the weekly chart are below its 50- and 100-day MA but still above its 200-day MA. The indexes didn’t move much on the weekly.

MACD (WEEKLY) = LOWER . The WEEKLY MACD is a lagging indicator, so it is reflecting the negative market environment. 

RSI: (S&P 500) @50.50 (DAILY) NEUTRAL.  RSI is neutral, which perfectly reflects the current market environment (i.e., flat). When RSI gets to extreme levels, there will be a trading opportunity.

Daily Intraday Volatility (VIX) = 24.64= COMPLACENT: The VIX is reflecting the summer doldrums. VIX is telling us there isn’t a lot of fear on Wall Street at the moment (i.e., complacency).

Comment: Welcome to a bear market summer. Although the indexes stopped falling last week, the summer doldrums have kicked in, translating into fewer trading opportunities. (I didn’t say “no” trading opportunities, only fewer.)

There are excellent trading setups, but they are harder to find and it takes a lot of work to profit from them. The trading friends I know are patient, and several wait for extreme selloffs, then pounce. Some of my investor friends are accumulating ETFs such as QQQ and SPY (they are scaling in with small purchases).

As you know by now, the easy days are over for now. We are in a bear market, and each one is different. Many investors have severe losses, one reason so many are taking a wait-and-see attitude. It may be a while until we get good trading opportunities, which is why dollar-cost averaging into indexes or certain stocks makes sense.

Do not forget that this is a bear market and that it’s challenging. In a bull market, a rally could run for many days or weeks before stalling. In a bear market, rallies rarely last longer than a day.

Enthusiasm for the stock market has decreased recently. Obviously, it’s a lot more fun in a bull market when everyone appears to be making money. In a bear market, it’s not as fun, especially when there are losses. However, this is a great time to study, accumulate small positions, and improve your skills. When the bear market ends one day, you will be a much more knowledgeable trader or investor, and hopefully with increased profits.

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