Do you remember how bullish investors were in mid-August? Well, all the folks who chased stocks into the 200-day moving average on the S&P 500 have done a 180 and are now as bearish as possible.
My opinion isn’t based on hard evidence but on discussions with other traders and what I hear from the talking heads on TV. That said, it’s worth noting that the percentage of stocks trading above their 40-day moving averages is down 16.2% from near 81% in mid-August.
Helene Meisler has told us for years that there’s nothing like price to change investor sentiment, and we’re seeing that today as stocks break support, sink toward the mid-June lows and investors act like the market hasn’t been in a bear market for most of 2022. I have no desire to stand in front of the selling we see in stocks, but it’s worth considering what could change that would warrant us looking for a bullish reversal.
As you probably already know, my short-term trend filter is the 21-day exponential moving average (EMA). As long as price is beneath that EMA, I typically restrict myself to day trading only. Based on that simple trend filter, I’ve been scalping and sticking to day trading for several weeks. But again, even if the S&P 500 and Nasdaq are ultimately headed substantially lower, I want to be prepared for the inevitable multi-week bounce.
In trading, things tend not to matter until they do. And right now, we know everyone is watching the U.S. dollar, the 2-year and 10-year Treasury yields, gold and the mid-June lows on the major averages.
I’ll skip the bond yields for today because I don’t see much to key off of on those charts.
I’ve got my eye out for a bearish reversal in the Invesco DB US Dollar Index Bullish Fund (UUP) , a bullish reversal on the SPDR Gold Trust (GLD) and any hint of a bullish reversal on the S&P 500 near 3,740-3,725 or the Nasdaq Composite toward 10,900.
The UUP and GLD failed to trade outside their prior session’s range on Thursday, so I’ll be looking for sustained range extension on both today. GLD, in particular, has had many eyes on it lately. A bounce above $157.65 should grab some attention, but I think we need a weekly close above $161.62 to reverse the current bear trend.