The Weekly Trader

TWO NEW BOOKS COMING: On May 24th, 2022, my two newest stock market books will be released. Here is the link to Understanding Stocks (3rd edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy . Both are excellent books. 

WHAT THE INDICATORS ARE SAYING 

This is what the technical indicators are telling us this week

Short-term trend (DAILY CHART) – LOWER. SPX retreated for the second week in a row, from 4488 to 4392, a 96-point pullback. The “Death Cross” is still displayed on the daily chart (when the 50-day crosses below the 200-day). Even more ominous, SPX is below its 50-, 100-, and 200-day moving averages on the daily chart. Futures are lower on Sunday night, but that could change in the morning.

Long-term trend (WEEKLY CHART) – FLAT. On the weekly chart, SPX is below its 50-day moving average, which is a red flag. On the longer-term weekly chart, SPX is still above its 100- and 200-day, which is a positive. We are watching these important support levels closely.

MACD (WEEKLY) = FLAT. The WEEKLY MACD is still flat with no clue as to which direction it will go next.

RSI: (S&P 500) @44.53 (DAILY) SLIGHTLY OVERSOLD.  RSI on the DAILY chart is slightly oversold but not at extreme levels.

Daily Intraday Volatility (VIX) = 22.70 = NEUTRAL: Option traders remain calm, as reflected in a low VIX.

Comment: The biggest financial news last week was that mortgage interest rates for Freddie Mac surpassed 5 percent. That should gradually slow down the housing market. Also, as many people know, inflation has risen sharply, especially food and gas. Only a few months ago, the Fed claimed that inflation was “under control.” That talking point is no longer valid.

The war in Ukraine is causing economic disruptions (and a humanitarian disaster), and it could get worse. Although the stock market is trying to ignore the bad news, it’s not working in the short term.

This week is leaning bearish because of all of the bad news swirling around, but the bulls could still take back control. In the short term, it’s not a pretty picture. The longer-term weekly chart tells us that the market has retreated temporarily although it could recover this week.

Watch to see if SPX can take back its 50-day MA on the weekly chart. If it can do that, then the bulls can win the week. If SPX cannot recapture its 50-day this week, it could get a lot uglier. Be prepared for any scenario.

TWO NEW BOOKS COMING: On May 24th, 2022, my two newest stock market books will be released. Here is the link to Understanding Stocks (3rd edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy . Both are excellent books. 

WHAT THE INDICATORS ARE SAYING 

This is what the technical indicators are telling us this week

Short-term trend (DAILY CHART) – LOWER. SPX fell back last week, retreating from 4545 to 4488, a 57-point pullback. SPX is slightly above its 50-day moving average on the daily chart, which is a positive in the short term. FUTURES are slightly lower on Sunday night, but that could change in the morning. 

NOTE: On the daily chart, the 50-day MA has crossed below the 200-day, another name for the Death Cross. So far this has not been significant, but we are watching it closely.

Long-term trend (WEEKLY CHART) – HIGHER. On the weekly chart, SPX remains above its moving averages. This longer-term chart is telling us SPX is still consolidating with no clue as to its future direction.

MACD (WEEKLY) = FLAT. The WEEKLY MACD is still “walking” the line (the zero line) with no hint as to which direction it plans to go.

RSI: (S&P 500) @51.45 (DAILY) NEUTRAL.  RSI on the DAILY chart is neutral after the selloff last week. SPX is neither overbought or oversold.

Daily Intraday Volatility (VIX) = 21.26 = NEUTRAL: Option traders are calm, as reflected in the low VIX. Fear has taken a holiday for now.

Comment: I wish I had more insights but the markets are calm and volatility is on the low side. Although SPX and the other indexes fell last week, it went from slightly overbought to neutral. At this time, the indicators are not giving strong signals in either direction.

This could be the calm before the storm, or it could just be calm. There is a lot of negative news swirling about, especially inflation and rising interest rates, but the market’s attitude is “What me, worry?” That’s a negative.

On the other hand, the indexes are generally ignoring the bad news. That’s a positive.

Bottom line: Stay the course. Traders will be hard-pressed to find many trading opportunities, at least until volatility returns.

TWO NEW BOOKS COMING: On May 24th, 2022, my two newest stock market books will be released. Here is the link to Understanding Stocks (3rd edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy . Both are excellent books.

WHAT THE INDICATORS ARE SAYING 

This is what the technical indicators are telling us this week:

Short-term trend (DAILY CHART) – FLAT. SPX was as flat as a pancake last week, moving from 4543 to 4545. In the trading world, that is consolidation. On the daily chart, the short-term sell-off was stalled as the market catches its breath. On the daily, SPX is above its 50-day moving average, which is positive. FUTURES are flat to lower on Sunday night, but that could change in the morning.

NOTE: 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. On the weekly chart, SPX remains above its moving averages. The longer-term weekly chart gives us a broader view of the market (50-week, 100-week, 200-week, etc.). While the short-term chart is volatile, the long-term view is positive.

MACD (WEEKLY) = FLAT: 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) @57.27 (DAILY) SLIGHTLY 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) = 19.63= NEUTRAL: Calm has returned to the options market as option speculators have stopped gobbling up put options for protection. As a result, the VIX continues moving to more “normal” volatility levels. Result: The nervousness of a few weeks ago has been forgotten.

Comment: SPX appears to be consolidating in the short-term, while still pointing higher in the long term. Market participants are being lulled into a feeling that “everything is okay.” Until there is evidence of a reversal, most investors are going to stay the course.

Last week could have been a whole lot worse but “window dressing” saved the day. Window dressing refers to the last few days of the month when fund managers dump their losers and buy winners. As a result, certain stocks go to the moon during the end of the month while losers are severely punished.

It is unclear which direction the market will go this week. After a two-week rally followed by consolidation, the market could go in either direction. Bad news is swirling around including higher interest rates, inflation, higher gas prices, and a war. Even though Friday’s job numbers were fantastic, inflation is making many people feel broke. It’s a very mixed bag.

Bottom line: No one can predict which direction the market will go this week, and I won’t even try. It’s a very tricky trading environment, and anything is possible. If trading, be extra careful as it’s easy to get whip-sawed.

TWO NEW BOOKS COMING: On May 24th, 2022, my two newest stock market books will be released. Here is the link to Understanding Stocks (3rd edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Market: https://amzn.to/35lnjQy . These are two of my best books.

WHAT THE INDICATORS ARE SAYING 

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.

WHAT THE INDICATORS ARE SAYING 

This is what the technical indicators are telling us this week.

Short-term trend (DAILY CHART) HIGHER. SPX skyrocketed from 4204 to 4463 last week, a 259-point explosion. SPX shot back above its 50-DAY moving average, catching many short-sellers off guard after a one-month selloff. What was the good news that helped bring the indexes higher? The Fed raised interest rates by a quarter point and the war in Ukraine continues. In other words, the news was not good, and yet, the market went way, way higher. Futures are LOWER on Sunday night but that could change in the morning.

Long-term trend (WEEKLY CHART) – HIGHER. SPX rose back above its 50-WEEK moving average last week.

RSI: (S&P 500) @57.09 (WEEKLY) NEUTRAL. RSI on the weekly chart went to neutral, which means SPX could go in either direction this week.

MACD (WEEKLY) = BEARISH: The daily MACD is below the 9-day signal line and below the zero line.

Daily Intraday Volatility (VIX) = 23.87 = NEUTRAL: After a month of selloffs, option buyers went back to buying call options, which lowered the VIX to “reasonable” levels. Fear took a holiday last week.

Comment: As mentioned above, after a month of selloffs, in one week SPX rose back above its 50-day moving average, and on less than positive news. It just goes to show that the market is not logical, one of the reasons why trading is such a challenging strategy.

It’s possible that a bottom is in for this month, so if you are betting on a selloff, be careful. I’ve seen this setup before, and it’s not good for the bears. The one-month selloff was stopped in its tracks and support held. The odds are now with the bulls unless there is an unexpected bearish event this week.

Nevertheless, many experts believe that rising interest rates will eventually lead us into a recession. With inflation spiking, rising interest rates is the solution, even if it causes a slowdown. As you know, rising interest rates puts a damper on housing (eventually), and increases consumer debt. And yet, the market ignored all of these problems and went way higher last week.

Bottom line: There is no way to predict which direction the market will go this week. If the market pays attention to reality, it will fall. If it ignores all of the current and future problems swirling about, it will move higher.