The market rebound continued on Thursday with more big gains across the board. The Dow gained 418-points and small caps led the way again with a near 2% gain. The price of oil spiked higher making the rally in stocks that much more impressive because crude is back over $100 a barrel. Bonds were up slightly despite another new closing high for the 10-year Treasury yield.
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The strength of the rally is impressive and the momentum may be back no the bulls' side. We knew that bear market rallies were explosive, but we also knew that that don't last and selling them tends to be the right move. That is of course we've made a low, and that won't be known until we see the technical picture confirm a new uptrend, which we haven't seen yet.
The S&P 500 (C-fund) moved above its 200-day EMA and the descending resistance line off the highs, which is big in a bear market, but the 50-day EMA is still in the way. Many market technicians use the simple moving averages which are calculated differently but as we mentioned the other day, the 50-day SMA crossed below the 200-day EMA (not shown), and that tends to trigger an over sold rally. We got that, but things could get tougher after this options expiration week concludes.
The DWCPF (small caps / S-fund) has also been up huge this week but the charts aren't quite indicating that the bear market is done. There is an open gap down below 1850, although we have seen explosions off the lows leave open gaps before. As a matter of fact some stocks just recently filled open gaps from the move off the Covid lows.
The resistance is obvious on the chart above and many people will be ready to buy or sell depending which way this breaks from here - above resistance, of back below it.
The March seasonality chart shows how rough the week after options expiration can be. It doesn't have to follow that game plan, and so far 2022 has not been a typical year, but history is on the side of at least some potential digesting of this weeks gains, and at worst, the end of a bear market rally.
Chart provided courtesy of www.sentimentrader.com
FedEx was down almost 2% after hours after posting earnings, and this could put some pressure on the Dow Transportation Index Transports today, but look at this move. Has it come too far, too fast, or is this marking the low for the recent bear market?
This is the point where analysts argue their bull or bear case, and the beauty of a market is that, if the bulls want to buy, the bears will be willing to sell. If the bears want to sell, the bulls will be happy to buy what they're selling. The question next week is, who will be right?
The futures opened fairly negative on Thursday evening but we'll see if the buoyancy of a quadruple witching options expiration Friday can grind out a fourth straight gain for stocks by the close.
The EFA (I-fund) is screaming off the lows like the rest of the market, and the dollar was down again giving some assistance. But we can see the resistance between 73.50, 74, and maybe up to 75 and about 75.50. The moving averages are all moving lower as well so resistance is falling.
BND (Bonds / F-fund) was up slightly and as I have been saying, not the best place to be in a rising interest rate environment, but perhaps due for some relief, especially now that stocks have rallied so much already.
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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I'm a little suspicious of the action being able to hold much longer given that this is an options expiration week, yields continue to inch higher, and the price of oil is back over $100 after the reduction of supply from the Russians.
The strength of the rally is impressive and the momentum may be back no the bulls' side. We knew that bear market rallies were explosive, but we also knew that that don't last and selling them tends to be the right move. That is of course we've made a low, and that won't be known until we see the technical picture confirm a new uptrend, which we haven't seen yet.
The S&P 500 (C-fund) moved above its 200-day EMA and the descending resistance line off the highs, which is big in a bear market, but the 50-day EMA is still in the way. Many market technicians use the simple moving averages which are calculated differently but as we mentioned the other day, the 50-day SMA crossed below the 200-day EMA (not shown), and that tends to trigger an over sold rally. We got that, but things could get tougher after this options expiration week concludes.
The DWCPF (small caps / S-fund) has also been up huge this week but the charts aren't quite indicating that the bear market is done. There is an open gap down below 1850, although we have seen explosions off the lows leave open gaps before. As a matter of fact some stocks just recently filled open gaps from the move off the Covid lows.
The resistance is obvious on the chart above and many people will be ready to buy or sell depending which way this breaks from here - above resistance, of back below it.
The March seasonality chart shows how rough the week after options expiration can be. It doesn't have to follow that game plan, and so far 2022 has not been a typical year, but history is on the side of at least some potential digesting of this weeks gains, and at worst, the end of a bear market rally.
Chart provided courtesy of www.sentimentrader.com
FedEx was down almost 2% after hours after posting earnings, and this could put some pressure on the Dow Transportation Index Transports today, but look at this move. Has it come too far, too fast, or is this marking the low for the recent bear market?
This is the point where analysts argue their bull or bear case, and the beauty of a market is that, if the bulls want to buy, the bears will be willing to sell. If the bears want to sell, the bulls will be happy to buy what they're selling. The question next week is, who will be right?
The futures opened fairly negative on Thursday evening but we'll see if the buoyancy of a quadruple witching options expiration Friday can grind out a fourth straight gain for stocks by the close.
The EFA (I-fund) is screaming off the lows like the rest of the market, and the dollar was down again giving some assistance. But we can see the resistance between 73.50, 74, and maybe up to 75 and about 75.50. The moving averages are all moving lower as well so resistance is falling.
BND (Bonds / F-fund) was up slightly and as I have been saying, not the best place to be in a rising interest rate environment, but perhaps due for some relief, especially now that stocks have rallied so much already.
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Thanks for reading. Have a great weekend!
Tom Crowley
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks for reading. Have a great weekend!
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
