The State of the Stock Market
With all the discussions around an impending recession, it is time to look at where we are in the stock markets. What people care about is what is happening with their investments. So, let’s start with the S&P 500:
Above is the trailing 3-month chart for the S&P 500. We can see from the red hand-drawn line that the trend has been consistently downward over the last 2 months or so. The yellow circles indicate the times when the S&P 500 index price crossed over the 10-day simple moving average only to fall back again. That has happened 3 times over the last 6 weeks. The price closed yesterday again just over the 10-day SMA. Will there be follow-through today. We will need to see the close.
As I write this note the pre-markets are strongly negative. But we have seen that stock markets have been turning on a dime intra-day in this volatile period. Speaking of volatility, here is the Volatility Index VIX chart for 3 months:
We can see that the VIX is below the high of around 35 reached earlier in May which was testing the earlier recent high in March. However, the trend shown by the red line is upward and that is obviously not good for stocks rising. There is a glimmer of hope (at least short-term hope) that the 10-day simple moving average has just crossed below the 20-day simple moving average. We can see from the yellow circles that every time that has happened the VIX has reversed its short-term trend.
In any case for any meaningful bounce in the stock markets we need the VIX to really fall below 20. It is almost 50% higher today at around 29. Note that the VIX moves around sharply and can easily fall 50% within a couple of trading days. We will just have to look out for it and also the stock market prices will tell us.
Reviewing the NASDAQ:
The patterns are exactly similar to the S&P 500 I drew above. Except that the NASDAQ has performed worse than the S&P 500.
And here is the Dow Jones:
Again, exactly the same pattern can be seen for the Dow Jones as we saw for the S&P 500 and the NASDAQ.
So, nothing really to do yet. Just wait and watch as the stock market trends unfold before us, and I will just take actions based on my model rules.