BROADER MARKET OUTLOOK
The S&P 500 has rallied roughly about 16% from its 52 week bottom. Will the rally continue? Or will the S&P 500 continue downward in it's bear market downtrend that it has been in since last November? The past several months the broader markets have been dominated by inflation due to the Russian War and the Federal Reserve's quantitative tightening. Lets take a look at some of the ticker symbols that can be utilized as quasi macroeconomic indicators so we can get a better picture of the broader market outlook and the possible future price action.
The chart directly below is the S&P 500 futures. Notice how the price is near the long-term resistance level that has kept the price on a downward trajectory since the downtrend started last November. What will it take for the price to break out to the upside of this downtrend and climb above this long-term resistance level? What will it look like if we get a major rejection of this resistance level?
The indicators in the chart directly above correspond with the chart of S&P 500 futures above. Noticed how some of the indicators appear to be rolling over and oversold territory. This will happen often during a strong rally as the indicators will stay in bullish territory. More specifically the RSI value will stay above 50 during a rally. Above the RSI 50 value is bullish territory in my opinion. So for the short-term rally to continue I would expect the RSI to bounce off of the 50 value or at least stay above it. If the RSI drops below 50 then the short-term rally will have lost its strength temporarily. MACD is still strongly in bullish territory but it is possibly beginning to show signs of weakness as well.
In the chart directly below I have the 4 hour candles so we can see a more clearer picture of the short-term trend. I have highlighted the very short-term support of the current 4 hour price channel by a purple line. If the price drops below this support then that will be bearish for the very short term time frame. A bounce off of this support level could very well lead to a breakout above the very long-term resistance that I mentioned above. If the price does drop below this support then I have highlighted a previous consolidation zone to watch for a potential bounce if this rally is to continue. If price dips below that previous consolidation zone then it will look very bearish for the short-term.
The 4 hour indicators appear to be flipping to the bearish side.
I included the picture below to illustrate the outperformance of the NASDAQ to the upside and to the downside depending on whether it's a red or green day. If the market continues the long-term bearish trend then tech companies in the NASDAQ will perform a lot worse than the value companies within the Dow Jones Industrial Average. On an interesting side note, the Russell 2000 Index performance much worse than the rest of the big three major indexes. This is because all of those memes stonks that were recently rallying have been falling off a cliff. And a lot of those low price memes stocks are allocated within the Russell 2000 Index.
If you did not already know then generally speaking when the market is going down then VIX is going up. Or vice versa.
In the chart directly below you can see how VIX has been traveling downward within this price channel while SPY has been running over the past few months. The previous top in VIX, which is the high of this price channel, corresponds perfectly with the 52 week bottom of the S&P 500. I have highlighted a short-term resistance of this price channel that VIX has been traveling downward within. If the price of VIX crosses above this resistance then that will be a bearish look for the market in the short term time frame. If VIX's price continues it's downtrend within this channel then of course that would be a bullish look for the broader equity markets.
With inflation skyrocketing recently and the US Federal Reserve implementing quantitative tightening, treasury yields have been something important to watch lately. Typically under normal market conditions rising yields would be bullish for the market. But with inflation being so high and the Federal reserve increasing interest rates at its fastest pace in a very long time, increasing yields have had a negative impact on the broader market.
The market has already priced in pretty much all of Jerome Powell's expected interest rate increases. If Jerome Powell hikes interest rates at a higher rate than expected or if the market is expecting him to hike at higher rate then we will see the two year yield increase. This will be bearish for the broader equity markets. If the Federal reserve makes a pivot and policy and announces that they will slow the interest rate increases then we will see the two-year yields drop which will be bullish in these current market conditions.
The Federal reserve has no control over the 10-year yield or the 30-year yield. But you can use them as a good indicator of what the market expects inflation to be like in the future. If the market is expecting inflation to keep skyrocketing then you will see the 10-year yield make new highs. This would be a bearish notion for equities as it would instigate the Federal Reserve to hike interest rates further.
I don't know why but some analysts do not believe that oil has a major impact on inflation. Oil is used in one way, shape, or form and basically everything we buy or use on a day to day basis. So if oil prices go up then the prices of just about everything else will go up essentially. You must keep an eye on oil prices to gauge the market's response to inflation. Sky high oil prices have been undoubtedly caused hire inflation and brought the equity markets to the downside. So if we see a sharp spike in oil prices or if oil climbs to the previous highs of around $130 then this would absolutely add to the inflation narrative and cause uncertainty in the equity markets which will lead to more selling and a deeper bear market.
Notice in the charts directly below of crude oil futures how the candlesticks are forming a wedge pattern near a long-term support. occasionally you can see big breakouts to the upside or downside from these candlestick wedge formations. So keep an eye out for that.
A few months back gold rallied with inflation as it is typically used as an inflation hedge. The Dollar Index was rallying as well. Eventually the value of the rallying dollar caused the strength in gold to disappear. If the US dollar continues to rally and gold may not gain back its strength until the dollar rally is over. This correlation in gold and the USD is mainly due to the fact that gold is traded as a currency pair with the US Dollar on the forex markets.
Under normal market conditions the Dollar Index and the equity markets have an inverse correlation. Basically when the market is going up the Dollar Index is going down. Or vice versa. UUP is a ticker symbol that tracks the movements of the Dollar Index almost perfectly.
In the chart directly below you can see how UUP has broken above a downward trending price channel. This is a bearish look for equity markets. As you can see in the chart this past week the Dollar Index has broken out to the upside. And at the same time in this past week the S&P 500 closed red. The rally in the dollar this past week could possibly have been instigated by fed official hinting towards not slowing down interest rate hikes. But Jerome Powell himself said the rate hikes will be data dependent. So all we have to look forward to are the economic data releases that come out every day.
Many investors follow the corporate credit markets. They use it as a leading indicator of the possible future movements of equity markets. Essentially the corporate credit markets are where investors buu the debt of companies under the assumption that the companies will pay it back in the future. So when the future outlook is not good investors are less willing to buy corporate debt or they will sell their debt that they had purchased. If future outlook looks good then investors are more willing to buy corporate debt at higher prices. Future outlook is a major factor in corporate credit markets. This is why they are a good leading indicator of possible future price movements in equity markets.
The two charts directly below are of LQD and HYG. These are two ticker symbols that follow the corporate credit markets of more liquid and less liquid companies. Basically they are showing signs of weakness and a possible downtrend could be forming as in both charts they have recently broken below a local support level. This is a bearish notion for equity markets in the short term time frame. If these two ticker symbols increase in price that will be bullish for the markets. Any drop in price with these ticker symbols will be bearish for the markets.
We cannot talk about the broader market outlook without talking about Bitcoin. Bitcoin had a terrible week last week finishing the week with a massive red day of an over 10% loss which erased all gains that were made since last July. I had posted several times about the price channel Bitcoin was traveling within over the past few months. There were several opportunities for scalping some shares of Bitcoin related companies. As of the end of last week Bitcoin has dropped well below the price channel. Now I'm waiting for a new trend to form so we can scalp some crypto companies again.
All of these are ticker symbols I watch every day. They give me a good idea of the bigger picture in the market and they help me to understand the nonsensical moves in the market. If one of the ticker's price action is acting really strange then there is more than likely something happening within the markets or within the macro environment. I literally have these tickers visible on a watchlist at all times. Here is my main watchlist.
If you have any questions about why I follow these ticker symbols everyday, or any questions about my analysis on the broader market outlook, then please feel free to ask. Leave a comment.
$SPDR S&P 500 ETF (SPY.US)$ $SPDR Dow Jones Industrial Average Trust(DIA.US)$ $Invesco QQQ Trust (QQQ.US)$ $iShares Russell 2000 ETF (IWM.US)$ $VIX Index Futures(DEC4) (VXmain.US)$ $Powershares Exchange Traded Fd Tst Db Us Dollar Index Bullish Fund Etf (UUP.US)$ $iShares 20+ Year Treasury Bond ETF (TLT.US)$ $SPDR Gold ETF (GLD.US)$ $iShares Silver Trust (SLV.US)$ $Crude Oil Future Main(OCT2)(CLmain.US)$ $Ishares Iboxx $ High Yield Corporate Bond Etf (HYG.US)$ $Ishares Iboxx $ Investment Grade Corporate Bond Etf (LQD.US)$ $Copper Futures(MAR5) (HGmain.US)$
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Trade the trends via technical, fundamental, and macro analysis. Day Trades, swing trades, and long-term investments.
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warrior-sailormoon : Information overloaded BUT I like it!
Lots of information to digest BUT I like it!
Thanks for ur generosity and relaxation for sharing with us here.
Thank you SpyderCall
SpyderCall OP warrior-sailormoon : it is my pleasure![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
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warrior-sailormoon SpyderCall OP : It’s My pleasure Thank you.
Milamber : Thank you for the analysis
Popular on moomoo : Thx for sharing![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
SpyderCall OP Popular on moomoo : Gotta help the retailers make some cash money
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Upper 90 : Great analysis and helping others understand the correlation of the other elements (USD, Crude prices, crypto, corporate credit, etc...). Thank you for sharing your insights.
SpyderCall OP Upper 90 : it helps me in my investing. I'm glad to share