Good evening gang!
It has been a while since I’ve commented on the markets outside of social media, but this is as good a time as any. My pre-2023 predictions are all now in the toilet so all that can be done is a review of what I said in May and where we are now.
After the May options expiration which was a down day on high volume, I basically stated that the markets will stay within a range all summer and that most of the big money will stay on vacation until September. What happened? The market stayed in a higher range than I thought it would or could thanks to the Big 7 of 4200-4500 and did nothing. No volume to speak of, no commitment to a bullish or bearish trend, a trader’s wet dream in other words.
Then last Friday, another options expiration hit and the average of daily volume about doubled in both the NYSE and NASDAQ (via the WSJ data page):
Meanwhile today an interesting candlestick pattern appeared in the broad Wilshire 5000; a hammer candle which usually means a bullish reversal is about to begin.
However, I think the Fed will commit another blunder so after an afternoon of whipsaw action tomorrow, a brief rally on Thursday, the distribution will probably continue.
This brings into question just which charts are of concern to yours truly? The S&P 500 stocks above the 50 day moving average that’s what and there is starting to be some notable deterioration in these charts indicating that the rot under the surface of the indexes might be getting worse. The current reading is nothing that the Pelosi Hedge Fund would be proud of:
Thus while the big stocks are holding the index up, a lot of the market is continuing to deteriorate as it has since the summer highs. The long term, or 200 day moving average is not much better.
Historically, especially heading into the third and fourth quarters of the year, this is not a good sign. Some prime examples are below.
The 2018 Banking Crisis:
Choppy then beheaded before the Powell bail out.
Lot’s of big tremors before the big one. Let’s hope this doesn’t start happening.
2000 .com disaster:
Only stock survived and stayed above the 50 DMA, for the life of me I think it was a defense stock, but I would have to do more research.
This is a useful but not absolute indicator which may provide a snapshot as to where the markets are heading. The equities might have a broad, low volume short covering rally tomorrow and Thursday unless the adults take over and provide the shock to interest rates that is needed. Regardless, remember the closer we get to less than 10% of S&P stocks trading above the 50 day moving average is usually an indicator that something bad could happen sooner than one thinks.