Bullish or Bearish? Week of September 26, 2022

MY TWO NEWEST BOOKS WERE RELEASED: 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  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) SELLOFF. The indexes plunged again last week, with SPX dropping from 3873 to 3693 during the week, another mind-boggling 180-point rout. There is a little good news mixed in with the sea of red. The daily chart is downright ugly, one of the worst in recent history. On Sunday night, futures are flat to slightly lower as the market tries to catch its breath. Futures could change direction in the morning, and they probably will.

Long-term trend (WEEKLY CHART) – DOWNTREND. Little did I know that SPX would plunge to its 200-week moving average in one week! The odds are good the indexes will hold at 3585. If not, then it will get uglier than anyone can imagine. My money is on support holding.

MACD (WEEKLY) = DOWNTURN. The WEEKLY MACD is reflecting trouble, as MACD breached both the 9-day signal line and zero line.

RSI: (S&P 500) @28.90 (DAILY) EXTREMELY OVERSOLD. The odds are very good there is going to be a monster rally in the near future (based on RSI). I haven’t seen RSI numbers this low in a long, long time. As always, you can’t use RSI to time the market but a snapback rally is coming, so be prepared. Yes, the indexes could keep falling a bit longer but one of these days the shorts are going to get smashed.

Daily Intraday Volatility (VIX) = 29.92 HIGHER: The VIX has been creeping up as the market has been falling. Option traders are finally waking up to the fact that it’s a bear market. When VIX is at 30 and higher, there is fear. At 40 and above, it’s panic. Note: VIX is a contrarian indicator but still should not be used to time the market, only to gauge its mood.

Comment: I don’t have to tell you how ugly the chart looks. Many traders are buying the dip on the way down, a dangerous strategy that should work eventually, as long as you trade or invest small.

Fed Chair Powell warned he was going to keep raising rates, and he kept his word. Many blame him for “juicing” the market by keeping interest rates too low for too long. Now they are blaming him for taking away “the punch bowl” too aggressively, causing pain in stocks, housing, and cryptocurrencies. It’s not a pretty picture.

As I wrote earlier, a snapback rally is coming, although no one knows when. We are in a bear market although the financial media doesn’t mention it much. (Technically,, we’re “almost” in a bear market.) Perhaps everyone is waiting for a bell to ring!

In the past, I’ve given advice about what to do — from staying on the sidelines to dollar cost averaging. Traders may try to buy the dip but this is a dangerous strategy. Inexperienced traders should trade small while investors should DCA into index funds. Eventually, bear markets end, but only after maximum pain has been inflicted.

If we do get a monster rally soon, the odds are good the rally won’t last long, so be prepared for a volatile market. The chart looks about as ugly as can be but once again, this is the time to think about buying rather than panic selling.

Good luck out there and be sure to follow your rules. Trading should be lighter on Monday due to the Jewish holiday. The Fed is running the show and Powell seems determined to raise rates ONE MORE TIME. (Eventually, Powell may get his wish and slow inflation, but it’s likely he’ll take stocks and housing down with him.)

I will notify you of my posts via twitter@michaelsincere

Understanding OptionsUnderstanding StocksStart Day Trading NowAll About Market Indicators