Who's winning? The Bulls or the Bears?

October 26, 2022 Mid-Week Market Update

Score check

Traders were left feeling a bit uneasy yesterday when $MFST and $GOOGL both sold off sharply. The move came in after-hours trading on disappointing earnings statements. "Would that be the rally killer?" was the question on everyone's mind.

But then a funny thing happened today. The rally paused briefly but quickly resumed. Furthermore, while $SPY and $QQQ were down in premarket trading this morning, $IWM was still up and showing nice relative strength. And as you know, small caps have been the leader lately in both directions.

Point bulls +

In weeks past bad reports like these would've tanked everything. And when it looks like the market "should" do something and then doesn't, that is often a noteworthy occurrence.

Another point for the bulls ++

Add in some dovish? commentary from the Bank of Canada and we were off to the races again.

More Points for the bulls +++

Finally, two of possibly the most important factors - the US Dollar $DXY and volatility $VIX - have both continued lower. Most notably, the Dollar appears to be breaking down from the massive parabolic move.

The bulls are on fire! ++++++++++

Not so fast

Just when it seemed the market could never go down again (/sarcasm) we got a reality check. Around lunchtime today selling took over and sent the indexes lower. I won't bother trying to guess the reason why. The price action is on the chart whether we properly identify what's going on behind the scenes or not.

Point bears?

Meh, perhaps.

On the small timeframe, the afternoon dip did energize some bears and may have shaken the confidence of some bulls.

Today’s daily candles don’t exactly inspire optimism. see charts below

If this selloff gets some follow-through tomorrow, and if the indexes move back below the 8 and 21-day EMAs, then the bears get some points.

But we must stay mindful of intermediate and long time frames as well.

Medium timeframe:

Stocks are well off the lows, back above the short-term moving averages, and above recent support/resistance levels.

But they are extended. This is day 4 up for the indexes.

$SPY has rallied over 11% (at the widest point) in 13 trading days, nearly achieved a bull flag measured move price objective, and is up against the medium-term 50-day moving average. A pause here should not be a surprise.

4-hour chart showing the bull flag pattern w/ measured move price objective.

Long timeframe:

It's still a bear market. The FED is still tightening. Inflation is still a problem.

Putting it all together

While the bears are still winning the medium/long game, in the short term the bulls have been scoring more points.

The pieces we've been waiting for (breadth, sentiment, volatility, the Dollar) are coming together and conspiring to move stock prices higher.

Who knows if we've seen the bottom? And who knows if this rally is over? Trying to predict is a fool's game.

So far it still looks like a tradeable active sequence higher. And I will continue to treat it as such until that changes.

And it could change at any time. There is still a slew of major earning reports coming this week. ($META, $AMZN, $AAPL, $XOM, $CVX to name a few) So the market could be tested. The reaction to the reports, good or bad, should be useful information.

Stay vigilant. Watch the key support levels on the indexes and any holdings. And manage your risk.

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The Charts

$SPY - briefly got above the June low anchored VWAP and the 50-day moving average

$QQQ - rejected at the October high pivot but still above the September pivot high anchored VWAP

$IWM - cleared resistance around 180.50 but came all the way back down to the upper Bollinger Band and 50-day MA.

$VIX - continuing lower

$DXY - perhaps the most important chart right now. The Dollar is finally below the parabolic trendline dating back to January 2021, and the 8/21/50-day MAs. There could be some potential support around 109-110.

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***This is NOT financial advice. NOT a recommendation to buy, sell, or trade any security. The content presented here is intended for educational purposes only.

Andrew Moss is an associated member of T3 Trading Group, LLC (“T3TG”) a SEC registered broker/dealer and member of FINRA/SIPC.  All trades placed by Mr. Moss are done through T3TG.

Statements in this article represent the opinions of that person only and do not necessarily reflect the opinions of T3TG or any other person associated with T3TG.   

It is possible that Mr. Moss may hold an investment position (or may be contemplating holding an investment position) that is inconsistent with the information provided or the opinion being expressed.  This may reflect the financial or other circumstances of the individual or it may reflect some other consideration.  Readers of this article should take this into account when evaluating the information provided or the opinions being expressed.

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