Stock Market assessment
The last 2 days for S&P 500 and the rest of the stock market have been bad. Let’s take a look at what signals we can derive from the overall action this year. The S&P 500 touched all all-time high of 4796 right at the beginning of the year. But ever since then it has been on a downward trajectory with the low for the year coming on March 8 when it printed 4170. This was -13% below the high. Currently, at 4481, it has gained back around half of the losses from the beginning of the year. The question is what happens from here?
From a fundamental perspective there does not seem to be any catalyst that can drive the market higher. The war may get over, but it will likely take much longer for all of Europe to stabilize. The only catalyst could be that we have reached peak inflation and the number starts to go down from here. The chances of that seem low as well, at least not for several months. So, from fundamental perspective, the best-case scenario seems to be flat markets for a while.
From a short-term technical standpoint, I like that the 10-day moving average of the S&P 500 is still over the 20-day moving average. Also, the 20-day just crossed over the 50-day moving average.
But if we look at the longer-term trends, we can see that the 50-day moving average is still below both the 200-day and the 100-day moving averages. So, technically, we are still in a “death-cross” situation.
Looking at the chart for QQQ (NASDAQ 100) we see a similar pattern. In fact, the 100-day moving average has just crossed below the 200-day moving average.
The word then is caution. We need to see short-term, and the long-term trends align before we can make bets with higher probability of success. Meanwhile, it is a trader’s market where experienced traders may be able to make daily bets and generate trading returns.