The Next Big Move
Welcome back to the front folks. It is very early in the morning and so far I have changed my mind about the near-term direction in the market about 20 times. That reinforces my view that it is impossible to have a strong near-term opinion due to the news volatility in war. The market has had a very powerful move off the March low and is in the process of consolidating that gain based on fear. The fear of missing any further gains is keeping the aggressive sellers at bay, while the fear of a Baghdad bog down is keeping the aggressive buyers at bay.
Those fears create an environment of high angst and low liquidity, which can translate into high volatility. Everyone has their finger on the trigger, but no idea where to aim.
In that vein, let me point to some near-term technical factors in the market, as defined by the S&P 500. The rally off the lows was strong enough to get the SPX to bump up against the 200-day moving average and the upper end of its trading range that began last June, as shown in the first and second chart below. In addition, the SPX became as overbought as just after the August and October 2002 rallies off important lows. One was followed by a rapid decline, while the other was followed by sideways action for nearly three months, as shown in the third chart below.
As you can see, the near-term indicators are giving mixed signals, which raises angst as traders and investors look for the next reason to take an action -- either buying or selling. Now that the market is in a very well-defined trading range, the next major move (up or down) should be identified by a move above resistance or below support. The move should be big enough that taking no major action beforehand may not mean much over time.
From my technical viewpoint, you don't have to be a major bull or bear right now, but you should be ready to become one or the other soon.
The SPX is near its long-term moving average
The market is in a very well-defined trading range
Overbought may or may not suggest aggressive selling
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