The stock market had a mild down week against a challenging news backdrop and thus sets itself up for either a strong move up or down in the near term. My hunch is that the market will do both in the coming week or two. And that is a strong move down followed by a strong move up. But catching the final bottom in this scenario is bound to be tricky. Unless you are an experienced trader, it might be smarted to control your risk with smart “betting strategies” – buy even chip size over an even time frame in active ETF positions. Anticipate a possible scary plunge and reversal based on “obvious bad news.”
Key underlying short-term timing indicators show the following:
NYSE McClellan Summation Index: This indicator has a current “oversold” reading of 29. It has been in the oversold area for several weeks and the dots are clumping in a basing area. When the market turns decisively to the upside, expect that move to be sustained.
Fear/Greed Index: This popular indicator is in the “Extreme Fear” territory with a reading of 14. It has been in this territory for several days now and only needs to continue going down towards a sub-5 reading ideally. That could happen in the next week or so with the negative news background and the gradually declining sentiment.
The stock market has made a strong rebound from the deeply oversold bottom from late February’s invasion day. But that momentum appears to be waning with the prospect of more weakness over the near-term. The internal indicators are in middle ground suggesting that the general market is not deeply oversold or overbought. Therefore, the short-term market direction is up for grabs. With the general climate of the market, I would favor a retest of the late February lows with enough bad news to scare the weak Bulls to capitulate. That climatic bottom could come in the next 5-8 trading sessions.
Key underlying short-term timing indicators show the following:
NYSE McClellan Summation Index: This indicator is still bottoming after a long decline for many weeks now, but it is starting to turn up. This points to a possible intermediate term bottom or powerful bounce in the making.
Fear/Greed Index: This popular indicator is in the “Extreme Fear” territory with a reading of 17. It has taken a lot of time to get this index into the “Extreme Fear” range, but it now has the possibility of going to the sub-5 reading that has often marked the bottom of major moves in the recent past. This index is telling us to get ready for a possible buy signal on a scary retest of the February lows.
The Fear & Greed Index moved strongly into “Extreme Fear” territory today with a reading of 19. Solid intermediate-term bottoms have occurred when this indicator gets as low as 2 or 3. There is a chance that this indicator is setting up for such an occurrence during next week. That provides enough time for more bad news to hit bullish investors into dumping their holdings at the bottom in a brief period of maximum fear.
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