Reading the Trending Stock Markets
The stock markets are always trending. They are either trending bullish or trending bearish. I also look at duration as a measurement of around what time frame are they trending. They have a short-term trend and a long-term trend. These could be divergent as is the case right now. Right now, we have a short-term bullish trend within a long-term bearish trend. In such markets I like to not play with long-term trades because there is a risk the markets can reverse trend quickly. I usually trade with options and take gains (or losses) quickly.
After 3 straight up days the S&P 500 took a breather Friday and closed down. I did anticipate this down day and was positioned with put options. However, I sold too early in the day and did not make the most of the down day. A gain is a gain though and I will take it.
Overall, the S&P 500 was up +2.6% for the week. It continues to trend short-term bullish and is up +5.4% over 1 month. Year-to-date it is still down -16.9% and still within the “death-cross”.
So, we could be considered to be in a short-term bullish scenario within an overall longer-term bearish trend. Yes, that would be right. However, we also know that stock markets will eventually go up. The only question is when?
The NASDAQ is also in a very similar situation like the S&P 500. It is trending bullish short-term and up +7.1% over 1 month. Over the last week it was up +3.3%. Longer term chart tells me it also is in a death-cross scenario and year-to-date return is -24.36%.
The Russell 2000 which is a representation of the broader stock market in my option is also trending very similar to the S&P 500 and the NASDAQ. It is up +3.6% over 1 week, up +6.9% over 1 month and down -19.5% over year-to-date.
The Emerging Markets (I use EEM) is the only major market bucking the trend of the rest of the markets. Per my system, it is still trending short-term bearish and also turned long-term bearish recently. It is up +1.9% in 1 week, down -0.4% over 1 month and down -19.3% year-to-date.
It is a bit hard to tell whether the Emerging Market is leading the market or lagging the market. It did turn long-term bearish (death cross situation) just recently and has not turned short-term bullish at all unlike all the other markets. Will have to see what happens.
So, to repeat (so that I remember for myself) we are mostly in a short-term bullish trending market within a long-term bearish market. I will not make long-term bets yet to avoid risk of quick reversals.
Looking at the year-to-date chart of the S&P 500, I can see there have been 3 prior attempts to reverse the long-term bearish trend that have failed. This current one is the 4th attempt. While it looks good now, the attempt can fail, and I need to be ready for that.
Finally, reminders to self:
I cannot predict the markets
Price is truth - accept it
Follow the price trend