Week 27 Market Trends Preview

Jul 03, 2023

What is the current trend? What is it signaling as the next move? Those are really the only answers I seek when I am assessing the markets for trades. We can certainly learn from the past but, at the same time, past performance is not an indicator of the future. A market that has returned huge gains in the last 6 months can keep returning similar gains in the next 6 months. Or maybe not. Unless I follow current trends, I may not be siding with the right direction.

I have added the MACD as an additional short-term trend indicator aside from the 4 moving averages that I track. So, going forward, my picture will also have the MACD read. The MACD read will have 4 states:

Trending bullish when both the MACD line and signal line are moving up and the histogram is positive.
Trending bearish when both the MACD line and signal are moving down, and the histogram is negative.
Chance of turning bullish when the MACD line is below the signal line, but the gap has started to reduce (histogram is negative but the value is decreasing).
Risk of turning Bearish when the MACD line is above the signal line, but the gap has started to reduce (histogram is positive but the value is decreasing).

Let’s check in on how the trends are looking like currently.

Summary

Almost all the major markets and the SPX sectors gapped up last Friday and look very toppy/frothy whatever we want to call it. From a short-term perspective, I would not put new money in them to the long side at this time. Having said that, I would not put new money to the short side as well. I am already somewhat short and need to see how the market develops.

The global markets look weaker than their US counterparts. So, are they leading or are they lagging?

Looking at the individual sectors a little more deeply, Technology seems to be ready to take a breather while Energy and Financials may be showing signs of strength. The Housing, Retail, Corporate Bonds, and some other individual sectors are trending nicely bullish. See the Alternate Sectors section below.

Commodities are mixed with Oil showing signs of strength and also potentially we see precious metals make a comeback.

Major Markets

The MACD just a few days back had turned bearish for all the major markets. The RSP and the DIA have moved back to trending bullish and the other 3 are indicating they will do the same. During this MACD trending, the other indicators have not moved much. Thus, the MACD is an early trend indicator that may or may not be confirmed by the moving average indicators later.

SPX Markets

All are either trending bullish or moving towards trending bullish. XLE may be the best long play among these right now.

Global Markets

The most interesting thing I notice is EWM from a MACD perspective is trending bullish but from a moving averages assessment is trending perfectly bearish. This could be an early signal that EWM is about to reverse course after a bad phase. I am not ready to trade yet but will place it on a watchlist to look for a trade in the near future.

Other than that, the global markets look a lot weaker generally than the US markets. Which one is “ahead” will determine what happens next.

Technology ETFs

It may look odd that most of them are marked as chance of turning bullish by the MACD whereas they are marked as trending perfectly bullish by the moving averages. That is because the MACD crossover occurred a few days back and now starting to turn back.

Energy ETFs