The Weekly Trader

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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.

WHAT THE INDICATORS ARE SAYING 

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

One-week trend = LOWER. SPX plunged from 4328 to 4204 last week, a 124-point shellacking. SPX is still well BELOW its 50-day moving average on the weekly but above its 100-day MA. After five losing weeks in a row, the bulls need to win one. Futures are higher on Sunday night but that could change in the morning.

SPX 50-day (WEEKLY) = LOWER. As mentioned above, as long as SPX is below its 50-day MA, it’s temporarily unsafe to go long in the short term. Long term investors are holding on for dear life (HODL), hoping the selloff will end soon.

RSI: (S&P 500) @37.14 (WEEKLY) OVERSOLD. RSI is strongly oversold and close to being extremely oversold. A snapback rally is likely, which is good news for the battered bulls.

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

Daily Intraday Volatility (VIX) = 30.75 = ELEVATED: Option traders are still gobbling put options for protection and speculation. The VIX is high but not at extreme levels (i.e., over 50).

Comment: It’s been many years since we’ve had a market environment like this. My concern is that we will have a drip-drip-drip correction (or worse), which is what has happened during the last month. Under this scenario, we will get a few days down, followed by one day up. By the end of the week, however, the market will be lower.

A slow-moving downtrend (as outlined above) would be the worst-case scenario because volatility will be subdued, rallies will fail, and it’s difficult for anyone to make money.

Traders thrive on volatility so a subdued selloff is a difficult environment. Also, investors simply hate a selloff that slowly erodes the value of their portfolio. Even some of the great stocks will fall along with everything else. I truly hope this slow selloff doesn’t continue for very long.

Bottom line: SPX broke below its 50-day MA. If it breaks below its 100-day, investors will be in a world of pain. It is too early to declare a correction or a bear market, but red flags are everywhere. It’s time to make a plan of what to do.

Hint: Watch the rallies for clues. For the last month, every strong rally has been followed by a strong selloff. That is not a good sign at all. On a positive note, on Sunday night there were signs of a peace agreement between Russia and Ukraine. Let’s hope it is the real deal.

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts’ latest newsletter:www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com

WHAT THE INDICATORS ARE SAYING 

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

One-week trend = LOWER. SPX fell from 4384 to 4328, a 56-point retreat. SPX is well BELOW its 50-day moving average, not a good sign at all. Futures are sinking on Sunday night (Dow futures are lower by approximately 400 points), but that could change in the morning. 

SPX 50-day (WEEKLY) = LOWER. The daily chart is horrendous, but when we look at the weekly chart, we get a longer-term view of the overall market. As you already know from reading the news, the market is in trouble. In the short term, it needs to climb back above the 50-day if it has any chance of a recovery.

RSI: (S&P 500) @42.16 (WEEKLY) OVERSOLD. RSI is on the oversold side but still not at extreme levels yet. 

MACD (WEEKLY) = BEARISH: The weekly MACD is below the 9-day signal line and slightly below the zero line. It’s not a pretty sight.

Daily Intraday Volatility (VIX) = 31.99 = ELEVATED: Fear has permeated the hearts and minds of option traders as they continue to gobble put options for protection.

Comment: If you’ve been reading this blog for a while, you will not be surprised that the market is struggling. There were clues of problems for several weeks, and recently, things got worse, not better.

After a 13-year bull market, a correction (or worse) was inevitable. Unfortunately, we’re getting hit with a lot of negative economic news, as well as a steady drumbeat of awful news in the war between Russia and Ukraine.

When you add in spiking oil ($125 a barrel reported on Sunday night), higher interest rates, a humanitarian disaster with no immediate solutions — it’s negative news as far as the eye can see.

As traders, all we can do is try to get clues from the cold, hard indicators and oscillators. In the short-term, the market is struggling. It must retake its 50-day MA if it has any chance of a recovery. If it fails, then the next stop is the 100-day MA on the weekly chart. SPX will have to break 4,000 for that to happen, which appears to be a long way off.

Bottom line: Let’s hope that this war ends soon so that Ukraine is free to pursue its own destiny. Until then, there are no winners.

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts’ latest newsletter:www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com

WHAT THE INDICATORS ARE SAYING 

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

One-week trend = WILD. SPX was headed to the abyss last week when it made an astonishing 2.24% rally on Friday, ending the week higher. SPX rose from 4348 to 4384, a 36-point advance. SPX is still BELOW its 20-day and 50-day moving averages, a red flag. Futures are sinking on Sunday night, but that could change in the morning.

SPX 20-day (WEEKLY) = LOWER. As mentioned above, SPX remains below its 20-day and 50-day moving averages. The Friday blow-your-socks-off rally lasted one day, typical of a bear market environment. As long as SPX and the other indexes are below their 20-day and 50-day on the weekly, caution is advised.

RSI: (S&P 500) @44.67 (WEEKLY) OVERSOLD. RSI is on the oversold side but not at extreme levels yet. 

MACD (WEEKLY) = BEARISH: The weekly MACD is below the 9-day signal line and almost touching the zero line. If there is a selloff on Monday, then MACD will be below the zero line, a bearish signal.

Daily Intraday Volatility (VIX) = 27.59 = ELEVATED: Fear is still in the hearts and minds of option buyers.

Comment: Before I give an overview of the market, I want to point out what happened on Thursday and Friday. On Thursday, the market was headed into the abyss, and was lower by nearly 900 Dow points. Around midday, the market staged a spectacular recovery and ended the day higher by approximately 90 Dow points.

This intraday reversal, one of the strongest in memory, was a clue the selloff was temporarily over. It was the time to go long, and sure enough, the rally carried over into the next day. Any hapless short seller who misread the signals would have been blown out on Friday. Lesson: Always be on the lookout for intraday reversals, and don’t fight the signals no matter what you “think” is going to happen.

Friday was absolutely stunning, what I refer to as a “Steamroller.” Anyone who tried to short on Friday may not have an account right now. It was one of the strongest rallies in years.

As it turned out, that rally may only last a day, what Mark D. Cook used to call a “one-day wonder.” If the selloff on Monday continues, it would be more evidence that a bear market may be near or here. Again, it’s time to be on your toes.

There is a lot of bad news swirling around, as you are well aware. Geopolitical, inflation, rising oil, the list goes on and on. It will be interesting to see how the market reacts to all the bad news this week. In a bull market, the market tends to shrug off bad news and move higher. In a bear market, the market shrugs off good news.

I’m not saying that it’s a bear market. Perhaps we’ll get lucky and only experience a correction. I certainly hope so. Meanwhile, reduce trading size and be alert. The easy days are over for now. It’s time to bring your “A” game to the trading floor.

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts’ latest newsletter:www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com