Bullish or Bearish? Week of October 24, 2022

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Short-term trend (DAILY CHART)  SHORT-TERM RALLY:  SPX rallied strongly on Friday (and on previous days), taking SPX from 3583 to 3762, a phenomenal 179-point gain. Unfortunately, SPX is still below its moving averages, which means it’s still a bear market. On Sunday night, futures are flat, but that could change in the morning. 

Long-term trend (WEEKLY CHART) – SHORT-TERM RALLY. The SPX 200-week moving average is still acting as a support level. However, SPX is below its 50-week and 100-week moving averages. The 200-week is the key: If it breaks below, all bets are off. For now, the 200-week is holding.

MACD (WEEKLY) = PROBLEMS. The WEEKLY MACD is still reflecting market problems, as it’s below the 9-day signal line and zero line.

RSI: (S&P 500) @51.14 (DAILY) NEUTRAL. Last week, RSI flashed an oversold signal, and it was right. After a strong rally last week, RSI is back to neutral. Translation: RSI is telling us the market could go in either direction this week.

Daily Intraday Volatility (VIX) = 29.69 ELEVATED: Even with the SPX rally, VIX is elevated, which means the nervousness has not completely disappeared.

Comment: The blow-your-socks-off rally took a lot of traders by surprise (especially short-sellers). As mentioned above, until the indexes rise well above its three main moving averages on a daily chart, the bear market marches on.

As I wrote in my MarketWatch article last week, these strong rallies are typical in a bear market. That’s why we’re only in Stage 4 of the bear market (out of 9 stages). We have a long way to go before this bear is over.

It’s possible the rally continues for a while longer, but if it’s a true bear market, the rally will eventually fail. Be prepared for that possibility.

Bottom line: These are strange times so expect volatility to continue at least until the end of the year.

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