Bullish or Bearish? Week of October 17, 2022

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Short-term trend (DAILY CHART) – DOWNTREND:  SPX rallied and sold-off during the week, ending in a mild 53-point selloff from 3639 to 3583 (erasing the gains from last week). The SPX daily chart is as ugly as can be (below all three moving averages). Support is at the 200-WEEK moving average (more on this below). On Sunday night, futures are higher, but that could change in the morning.

Long-term trend (WEEKLY CHART) – DOWNTREND. The SPX 200-week moving average is support. Although SPX fell slightly below its 200-week MA on Friday, the odds are good it will rise above it on Monday (especially if the futures hold). If SPX drops well below its 200-week MA this week, then all bets are off – it could get even uglier.

MACD (WEEKLY) = DOWNTREND. The WEEKLY MACD reflects the awful trading environment, with MACD below its signal line and zero line.

RSI: (S&P 500) @38.04 (DAILY) OVERSOLD. This feels like deja-vu. Once again, RSI is oversold, so the odds are high there will be a rebound this week. Although RSI is oversold, it’s not at extreme levels yet (below 30). A rebound in the indexes is still quite possible.

Daily Intraday Volatility (VIX) = 32.02 ELEVATED: VIX remains at higher than normal levels, but not at extreme levels (which would reflect panic). VIX is telling us there is a heightened sense of nervousness, but it’s under control.

Comment:  If you are feeling as if the market is on a wild roller coaster ride, you are correct. There are these mind-blowing rallies followed by severe selloffs. This is the nature of bear markets, and unfortunately, no one knows when it will end.

The easy days of weeks and months of rallies are over for now. If there is a two-day rally, that is excellent. Most of the time, rallies are one-day wonders.

As mentioned earlier, SPX is still above its 200-week moving average, the only positive sign in a sea of red. Although not many are mentioning the word, “bear market,” we are in one, so trade and invest accordingly. (Not everyone agrees we are in a bear market. They want to see SPX fall below its 200-week MA first).

Yes, we could have a monster rally that brings SPX back above its three major moving averages, but until then, assume that the roller coaster ride is going to continue.

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