Some charts below that allow me to base an opinion on the current state of the stock market. In answer to the question posed in the title, I have no idea which way this resolves. All I can say is, as of yesterday’s close, it appears that the price action in the major indexes is much weaker than what it appears to be as SPX made new all-time highs this week but NDX and RUT didn’t. That SPX high was not confirmed by NDX or RUT but was confirmed by a new high in XLU, which is the utilities ETF. Wait, is that a confirmation or a non-confirmation? Isn’t XLU a risk-off asset while SPX is risk-on? See more regarding that topic on one of the charts below.
First, the chart below describes my IF/THEN method of chart analysis.
Below is the 5 minute SPY chart focusing on the bullish(?) price action since the FOMC lowered interest rates by 50 bps on Wednesday.
How about RUT? That’s the small-cap index and typically that responds positively when interest rates are lower because many small-cap companies rely on borrowed capital to fund operations. You would think RUT would’ve had a positive reaction to the 50 bps drop in rates, unless investors think that’s a sign that the Fed is expecting a recession soon.
Finally, the chart mentioned in the introduction. Why is XLU, an ETF where investors who are worried about market risk tend to flock to, out-performing the risk indexes? I’ll let you come to your own conclusion on that. You can read my conclusion on the chart.
Having said all of that above, I’m a trader not a long-term investor. These charts were chosen because they ‘agree’ that my bias should be somewhat bearish even though SPX made new all-time highs this week. I will not hang onto to a bearish bias if those non-conformations are invalidated. For example, if RUT moves back above the prior pivot high and finds acceptance there then the RUT chart is no longer bearish in my view. I don’t cling to a bias if the reason for that bias is invalidated.
Questions or comments? Leave them down below or on my Twitter (X) timeline @VegaOptions.
Intelligent analysis, clearly stated, as usual. Thank you! Another market analyst shared that the (volatility) indicators he watches are suggesting money be moved from QQQ to XLU – even after that 25% gain since April.
Appreciate the comments JL. I think the key, especially for short term traders, is to find what I refer to as bull/bear lines where the price action reveals who is in control of the current market. That’s where the best trade locations are located in my work. IF the sellers don’t step up here then the advantage goes to the buyers!