The S&P 500 is probably the most accurate broader stock market index that you can use for trading, which is why I am taking a look at the most used S&P ETF.
Today was unexpected and insane, much like the midterm elections. The tech underperformance has been turned around (will it last?) with a +7% gain on the Nasdaq outweighing a +3.5% on the Dow. The S&P was in the middle with +5.5%. This was apparently all thanks to a CPI report.
Look, I have heard a lot of chatter about these up days. It is apparently up way too much to justify the news. It is up too much and indicates an unstable market. It is up too much to justify the earnings & impending real estate crash. It is up too much to account for the overvalued nature of tech stocks. At the end of the day, it is a clown market.
Where are all the complaints for the down days? To most people, everything is as it should be if the 2022 stock market is going down in value.
The reason I mention this is because sentiment is so overwhelmingly bearish. The consensus is that it's going to get bad and then it's going to get even worse. That was a major part of the rally today: people who were short may have either lost a lot of money or cashed out, and there were lots of people who were short.
The thing is that people are continuing to go short! It seems that the old put buyers who lost money are just being constantly replaced by even more new put buyers. As long as this continues, there is some sort of floor for the stock market. I think we may have bounced off that floor today. Going into today, we were down about 2.5%.
You should not follow the crowd.
There seems to also be an impression that this is similar to 2008. In 2008, people did not understand the impending crisis. They thought there's something bad in real estate, but that it would be fine. Most people (until Sept/Oct) thought the bear market was just a pretty good time to buy.
This is nothing like today. Everyone is talking about an impending crash.
In 2009, everyone was talking about an impending crash. What happened? The market continued to go down... and then it abruptly stopped in March (which was one of the best months ever for the stock market)
The stock market could have bottomed out here. 2018 and 2020 in particular seem to support that. We had similar extremely strong up days that ended up signaling the end.
In 2018 ("just" a market correction,) it was at the exact bottom where stocks rallied 6% in one day
In 2020, there were a few days like that but the most notable one was in early April (+7%) when stocks were already 15% off the lows
We are sitting right below a key resistance level as well as a moving average that matches with it. It is likely we will have some sort of pullback around this level, but it could be extremely underwhelming and minor.
What you should look for is at the least some sort of intraday thing where it goes up past the level for a little bit, goes back down below it, and then rallies back above (probably fairly strongly.) This pattern happens pretty often and it can also be seen in 2018, where you got a rally after the big up day but it was filled with volatility.
If there is no appropriate pullback, that is a danger sign and you may want to turn around and short the rally soon.
In March 2022, there was a major rally that everyone seems to have forgotten. It went up very uniformly day after day: +4%, +2%, +3%... with basically no pullback at all.
The market has some room to run to the upside freely, but it has to acknowledge the existence of the resistance levels as well.
I would wait for it to get to that level and see if it goes back down a bit.
If it does turn around, you should probably buy up shares at that point, but if you are more conservative wait until it turns back around to the upside or something.
If it does NOT turn around, you should look to the next resistance levels and go short there. You could even go short immediately on the impression it has really just run out of steam and a big pullback is coming.
In terms of how viable a rally would be, it could probably go all the way to the trendline of doom. A few other indices seem to have broken out of their own similar trendlines of doom. This could be relevant to what happens there, but for now that should probably be a key level. (At this point in time, it also coincides with the pre-WyomingSpeech level)
There was a gap made below this level. It does not have to be filled ever, particularly with this pattern that we have. I would not pay attention to that unless there is a better setup for the downside.
The key thing is that you should not be caught up completely in the fear of missing out of the stock market rally. If you trade rationally and do not panic about what is happening, you will be able to make even better decisions than me! (Which is not hard)
Good luck!
Today was unexpected and insane, much like the midterm elections. The tech underperformance has been turned around (will it last?) with a +7% gain on the Nasdaq outweighing a +3.5% on the Dow. The S&P was in the middle with +5.5%. This was apparently all thanks to a CPI report.
Look, I have heard a lot of chatter about these up days. It is apparently up way too much to justify the news. It is up too much and indicates an unstable market. It is up too much to justify the earnings & impending real estate crash. It is up too much to account for the overvalued nature of tech stocks. At the end of the day, it is a clown market.
Where are all the complaints for the down days? To most people, everything is as it should be if the 2022 stock market is going down in value.
The reason I mention this is because sentiment is so overwhelmingly bearish. The consensus is that it's going to get bad and then it's going to get even worse. That was a major part of the rally today: people who were short may have either lost a lot of money or cashed out, and there were lots of people who were short.
The thing is that people are continuing to go short! It seems that the old put buyers who lost money are just being constantly replaced by even more new put buyers. As long as this continues, there is some sort of floor for the stock market. I think we may have bounced off that floor today. Going into today, we were down about 2.5%.
You should not follow the crowd.
There seems to also be an impression that this is similar to 2008. In 2008, people did not understand the impending crisis. They thought there's something bad in real estate, but that it would be fine. Most people (until Sept/Oct) thought the bear market was just a pretty good time to buy.
This is nothing like today. Everyone is talking about an impending crash.
In 2009, everyone was talking about an impending crash. What happened? The market continued to go down... and then it abruptly stopped in March (which was one of the best months ever for the stock market)
The stock market could have bottomed out here. 2018 and 2020 in particular seem to support that. We had similar extremely strong up days that ended up signaling the end.
In 2018 ("just" a market correction,) it was at the exact bottom where stocks rallied 6% in one day
In 2020, there were a few days like that but the most notable one was in early April (+7%) when stocks were already 15% off the lows
We are sitting right below a key resistance level as well as a moving average that matches with it. It is likely we will have some sort of pullback around this level, but it could be extremely underwhelming and minor.
What you should look for is at the least some sort of intraday thing where it goes up past the level for a little bit, goes back down below it, and then rallies back above (probably fairly strongly.) This pattern happens pretty often and it can also be seen in 2018, where you got a rally after the big up day but it was filled with volatility.
If there is no appropriate pullback, that is a danger sign and you may want to turn around and short the rally soon.
In March 2022, there was a major rally that everyone seems to have forgotten. It went up very uniformly day after day: +4%, +2%, +3%... with basically no pullback at all.
The market has some room to run to the upside freely, but it has to acknowledge the existence of the resistance levels as well.
I would wait for it to get to that level and see if it goes back down a bit.
If it does turn around, you should probably buy up shares at that point, but if you are more conservative wait until it turns back around to the upside or something.
If it does NOT turn around, you should look to the next resistance levels and go short there. You could even go short immediately on the impression it has really just run out of steam and a big pullback is coming.
In terms of how viable a rally would be, it could probably go all the way to the trendline of doom. A few other indices seem to have broken out of their own similar trendlines of doom. This could be relevant to what happens there, but for now that should probably be a key level. (At this point in time, it also coincides with the pre-WyomingSpeech level)
There was a gap made below this level. It does not have to be filled ever, particularly with this pattern that we have. I would not pay attention to that unless there is a better setup for the downside.
The key thing is that you should not be caught up completely in the fear of missing out of the stock market rally. If you trade rationally and do not panic about what is happening, you will be able to make even better decisions than me! (Which is not hard)
Good luck!
Comment:
The index has made it all the way back to when I originally posted. It did not even make it to the trendline.
The candlesticks do not look the best here in terms of potential upside. I am not anxious to go short but there may be a few percentage points to squeeze out on the downside.
You can try drawing an upward trendline using the lower end of the wicks on Oct 13th, Nov 3rd, Nov 9th. That would indicate we could fall a whole 1.5% on here.
I don't think it's overly worth it to sell if you still believe the bull case.
The candlesticks do not look the best here in terms of potential upside. I am not anxious to go short but there may be a few percentage points to squeeze out on the downside.
You can try drawing an upward trendline using the lower end of the wicks on Oct 13th, Nov 3rd, Nov 9th. That would indicate we could fall a whole 1.5% on here.
I don't think it's overly worth it to sell if you still believe the bull case.
The S&P and Dow in particular have been weaker than the tech stocks. This would tend to say something along the lines of "tech stocks are outperforming again, and defensive is underperforming" which gives strength to the rally.
The indices certainly look like they are breaking out of certain key levels and there is quite a bit of upside left.
Yields have also fallen and may continue to do so. This can help indicate further price gains are on the way