Right after the last Federal Reserve meeting in June the stock market began a bounce rally that carried over into July. The market actually dumped hard into that June Fed meeting so it was a bit of a short-covering rally that has taken place. On Friday, after the close, I saw headlines making out that last week was a huge rally in the markets and apparently there were some big rally predictions made by some popular CNBC people too, but when I look at the chart of the S&P 500 it doesn’t look like the stock market did much of anything last week.
The stock market failed to close above its recent high of the current rally last week. In reality, as I wrote last weekend, the stock market is simply in a slow motion bear market as the US economy slows down. Every time the markets goes up for a few days people come out and start to make predictions for a giant rally to come, but people are in denial of the fact that the Federal Reserve is hurting the stock market with its rate increases and does not care that it is! The stock market averages are deep in bear markets, with the S&P 500, DOW, and Nasdaq all trading well below their 150 and 200-day moving averages and those moving averages are trending down and now acting as key resistance points.
That is my definition of a bear market and it is happening this year in front of our eyes.
In bear markets, though, you do get bounces and now this one looks like it is nearing its end as the S&P 500 daily stochastics are poised to enter overbought territory, by crossing above 80, by the end of this week. You can look at the above chart and see that the last two times that happened that the S&P 500 then drifted sideways a bit and dumped.
In other words the market averages are almost fully overbought on their technical analysis charts and are still way below their 150 and 200-day moving averages.
I think we’re likely to see the market roll over before the end of this month. Earnings season will start soon, and I’d look for various earnings outlooks to be downgraded to hurt the market and then the market is likely to also go down into the end of the month Federal Reserve meeting, just as it has done during the last two earnings seasons and FOMC dates.
Again, now is the time to take some money off of the table and raise cash reserves by selling ETF’s and stocks that are lagging the S&P 500, imho.
This is not how small fries are thinking, though.
Instead they are looking for bottoms.
$ARKK is up 33% from its May lows. That was two months ago. $RBLX is up 90%. For the people saying we’re in a Tech and Growth bear market, how much does a stock or sector have to be up for it not to be considered in a bear market anymore? Is 33% enough? Is 90% enough? 200%?
— Wasteland Capital (@ecommerceshares) July 8, 2022
A 30% gain on something that has fallen 90% means nothing.
Dead cat bounces are not things to buy into.
People need to keep their eyes on the moving averages – and be patient.
Besides people looking for rallies on Twitter this weekend, another big topic of discussion is Elon Musk trying to pull out of his Twitter deal. Here is one take on it.
entire thing was clever ruse to
— Josh Wolfe (@wolfejosh) July 8, 2022
SELL + LIQUIDATE $8.5 BILLION of TESLA STOCK
(w/plausible excuse for doing it)
80% odds Elon pays $1B breakup fee
+ walks away with $7.5B liquidated
20% spends $100M fighting litigation
honestly think he can “land rockets”
but can’t fix ‘bots’? https://t.co/HTyOM3V36B
Remember, Musk, Bezos and hundreds of other company insiders unloaded billions of dollars worth of stock going into the end of last year just as the Nasdaq peaked out. They knew what they were doing and they are not buying yet.
There is no reason you should either.
If you are new to my articles then get the next one by subscribing to my free stock trading updates by clicking here.
-Mike
