Are We on the Verge of a New Swing Traders' Market? - Midweek Update
Plus a look at the US Housing Market
We may be on the verge of a new Swing Traders’ Market, which is a stock picker’s market where traders can make oversized returns. If you are unfamiliar, please read our Educational Post on this topic here.
Greed has found its way back into the market. Better yet, we are not at extremes yet, so there is room to run.
The Retail-Only Put/Call Ratio shows that small traders loaded up on put options, betting that the market falls. This is exactly when the market makers push the market the other direction (higher) to wash out (make unprofitable) these put options. Notice that retail bought a lot of puts last Autumn as well, before the rally. Could a similar situation be brewing?
The S&P 500 (SPY) is above the 10 EMA (pink), 20 SMA (blue) and 50 SMA (green), while the MACD indicator is above 0 (indicating an uptrend) and there are Net New Highs. This meets all of the check marks for a new Swing Traders’ Market. However this is as of now unconfirmed, especially since Tuesday’s high is forming a downtrend line with the March 28th high. The Stochastics Indicator is overbought and its time for a pullback. How the market pulls back will be very telling. If it has an orderly pullback to the 50 SMA (green) at $512, the 10 EMA (pink) at $510 or the 20 SMA (blue) at $506 before rebounding, it would tell us that this rally has legs and a Swing Traders’ Market is upon us. If it breaks below the YTD AVWAP (orange), then it would tell us that the downtrend is not over.
Next week is an economic data-heavy week, so prices could experience high volatility. All eyes will be on the PPI (Tuesday), CPI (Wednesday), and Initial Jobless Claims (Thursday). To validate this market, the aforementioned levels will need to hold through these data releases.
On the bright side, the S&P 500 Bullish Percent Index (BPSPX) is in a bonafide uptrend and is not yet over bought. Based on this breadth indicator, the rally does have fuel in the tank.
For Paid Subscribers, we’ll take a look at cycles for the US Housing Market.
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