Bullish or Bearish? Week of October 31, 2022

Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  


Short-term trend (DAILY CHART)  SHORT-TERM RALLY:  SPX made another phenomenal run on Friday (+828 points on the Dow), taking SPX from 3762 to 3901 during the week, an impressive 139-point rally. On a radio program a few weeks ago, I said that SPX could take out 4000 before the end of the year, and it certainly is possible. (Read my comments later on what could happen if it does.) On Sunday night, the futures are FLAT, but that could change in the morning.

Long-term trend (WEEKLY CHART) – SHORT-TERM RALLY. The SPX 200-week bounced off of its 200-WEEK moving average. which acted as support. As long as it’s above its 200-week, then the market is temporarily in the clear, even while certain sectors and stocks (especially technology), get mauled. Facebook lost over 20 percent in one day (ouch!).

MACD (WEEKLY) = HOPEFUL. The WEEKLY MACD is below the zero line but trying to rise above the 9-day signal line. Not there yet, however.

RSI: (S&P 500) @59.49 (DAILY) SLIGHTLY OVERBOUGHT. RSI gives a lot of clues, and right now, it’s telling us the market is more overbought than oversold. As you know, markets can get extremely overbought or oversold before reversing.

Daily Intraday Volatility (VIX) = 25.75 SLIGHTLY ELEVATED: After two strong weekly rallies, VIX is coming back down to Earth, that is, fear has lessened considerably.

Comment: It was another wild week. On some days, the technology sector got creamed, especially Meta (i.e., Facebook), as well as the Nasdaq index. On Friday, all was well again. We will soon find out if this two-week rally can make it three in a row. That would be something (especially as the Fed keeps raising interest rates).

As mentioned earlier, I said that SPX could hit 4000 before year end. However, since I believe this is still a bear market, if the market does rally that high (or close to that level), prepare for a spectacular reversal.

It may be hard for many to believe, but this rally has all of the characteristics of a bear market rally. It’s also possible I’m wrong and the bear market is over. On the other hand, if I’m right, the worst is yet to come. Judging by the elevated VIX, many option traders are cautious.

Let’s hope we get that Christmas rally even as the Fed vows to keep raising interest rates. Rates are already over 7 percent and headed to 8 percent. Something has to give, and that should be housing prices. It would not be surprising if stocks followed housing lower.

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