Bullish or Bearish? Week of March 28, 2022

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This is what the technical indicators are telling us this week (Note: I am using both the daily and weekly chart to analyze the market.)

Short-term trend (DAILY CHART) – HIGHER. SPX made a decent 80-point gain last week, spiking from 4463 to 4543. That’s two big up weeks in a row. On the daily chart, SPX made a remarkable recovery even with interest rates moving higher and the war in Ukraine raging. Futures are flat to lower on Sunday night but that could change in the morning.

WARNING: 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. SPX rose back above its 50-WEEK moving average last week. The longer-term weekly chart gives us a broader view of the market (50-week, 100-week, 200-week, etc.). On the weekly chart, SPX is back above its 20-week and 50-week moving averages, so for the long-term, the uptrend is intact.

MACD (WEEKLY) = STALLED: 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) @57.09 (DAILY) 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) = 20.81= NEUTRAL: Calm has returned to the options market as option speculators have stopped gobbling up put options for protection. As a result, the VIX has fallen to more “normal” volatility levels.

Comment: Even with interest rates spiking and the war in Ukraine continuing, the market has staged a remarkable two-week recovery. Short sellers who expected the worst got smashed. As always, the market has the final word.

It’s true that the algos may have helped the indexes behind the scenes, but that is irrelevant. All that matters is reality, and reality is that the market is moving higher in the short and long term. However, after clawing its way back above its moving averages, can the market continue moving higher? That is the question.

Too many traders who think logically expect the market to be logical, but the market rarely is. I sometimes think of the market as someone with manic-depressive tendencies whose behavior cannot be predicted. That is one of the reasons why short-term trading is so challenging for most people. It’s also the reason why dollar cost averaging into index funds is a sensible strategy for those unwilling or unable to trade for a living.

Don’t get me wrong: I am a trader and investor. However, it’s not easy to make consistent profits as a trader. If you are able to make money trading, that is excellent, and keep doing what works. But if you are losing money, or sleep, as a trader, consider switching strategies, especially when the market is so unpredictable. Right now, it’s more unpredictable than usual!

Based on the indicators, the market is learning towards the bullish side but it could easily stall out again with a failed rally.

Bottom line: The market clawed its way back out of the basement. Based on the indicators, it is impossible to predict which direction it will go this week. On one hand, don’t forget about that scary-looking Death Cross. On the other hand, the trend is higher in the short term.

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