It's Still a Bull Market (Until It's a Bull Market)

I re-learned the above statement again this week. There was no need for me to even try and play the downside just because I thought markets would go down. The markets did slow this week but not really down. So, it turned out to be a brief moment where I did not follow my system discipline and succumbed to my forecast. Thankfully, it was only a brief moment.

Anyway, May was a good enough month for me. I closed it with a +22% return in my trading account. My trades were all short-term in nature where I held for anywhere from 2 days to 2 weeks. There were no day trades as I have realized I am not good at it. There are a few trade setups that I execute with clarity in the risk and reward. And that works for me.

OK, enough of the past. On to the new month and the new week which will be Week 23. This is how my major markets trending heat map looks like now:

I have stopped trading the IWM as it seems to always underperform the SPY and QQQ. Every once in a while, I start to think that the IWM will have a catch-up trade and that never happens. WE can see from the heat map that large cap and tech are again showing leadership.

Every month-end I like to take a broader view of the trending by reviewing the monthly, weekly and daily charts. I like to start with the monthly, then the weekly and finally the daily.

Here is the SPY monthly chart.

The above is 3 years of the monthly chart. Each candle is a month with the last one being for May 2025. I have also plotted the moving averages (period is month), the MACD and the RSI at the bottom of the picture.

Firstly, we can see that all the moving averages are aligned to indicate a bullish trend. Last month (April 2025) price had closed below the 5-month (white) and 10-month (green) moving averages. Price had also for a brief period fallen below the 20-month (red) moving average. That was all during the quick pullback and recovery we saw in April. The April candle structure actually shows that. And then May was further confirmation of the recovery.

Interestingly, we can see that there is MACD crossover where the MACD line is below the signal line. That usually indicates overbought conditions and provides an early warning that we could see a drawdown or a pullback. However, let us not forget that this is the monthly chart. And things happen very slowly in this chart. We may (more like will) get the pullback but it could be after several more months. This is where we got to zoom in more to see better what is happening now.

So, let us speed it up a bit and look at the weekly chart for SPY.

The above is 2 years of the SPY weekly chart where each candle is a week worth of trading activity. I have plotted the moving averages (period is week), and the MACD and RSI at the bottom of the picture.

We can see that the moving averages are all aligned to a bullish trend. The MACD here though is completely opposite to the MACD in the monthly chart. The MACD is showing a classic bullish reversal indicating that prices have a higher probability of moving up from here.

I do not look at this contradiction between the monthly and weekly charts as confusing. These are same indicators but for different periods. I consider the monthly indicators to be more long-term in nature so we can consider that stock prices may face headwinds in the long-term future. But in the near-term (weekly can be considered mid-term) we are looking good.

Finally, let us look at the SPY daily chart.

The daily is my favored chart to analyze as it works well with my trading activity. Yes, from time to time I do review the hourly charts as well, but I do not trade based on that. All my drawings are also done on the daily chart. They automatically get reflected on the weekly and monthly charts as well.

We can see that the MACD here is somewhat to the MACD we saw on the monthly chart. It looks like trend is reversing because the MACD line almost crossed below the signal line but then went flat. So, the story is somewhat incomplete. We do not yet have a confirmed MACD crossover (technically we do because the histogram is slightly negative - see the number in the red label).

This MACD crossover is what drove me to do what I did as described in the first few sentences of this note. I started thinking that the market was going lower. If I had done what my defined disciplined system tells me to do, I would not have thought like that.

My defined system tells me that MACD is only a secondary indicator - not the primary one. My primary indicators are the moving averages. And, per my system, I do not consider market is going down unless price closes below the 20-day moving average (red). As we can see price has not even come close to going below the 20-day. So, it was just over-eagerness by me.

You can see that shaded area in the chart that I have drawn on the daily chart which is also being reflected in the weekly and monthly charts. That is what I call as the battlefield zone. This is where price has spent a lot of time in the past and I expect price to have to work hard to get out of this zone to the upside.

There is a chance that price is not able to get out of this zone to the upside at this attempt. We can see that it has already failed once. There is a small resistance level that has created which is now the first level that price has to cross over. We will know if price can do that very soon - potentially next week itself.

There is also a chance that price breaks back under the shaded zone because of selling pressure from folks who bought some time back at that zone. It make take a few attempts to shake out all those sellers. That is why I am watching the 20-day moving average closely. As long as price remains above that I will be net long the market.

I will be doing some more analysis over the weekend on other charts and will post on the X platform. You can find me @alternatetrader there.

Have a great rest of the weekend.