Weekly Market Outlook – Pushing the Rock Uphill

Perhaps the one thing worse than a loss on any given day is a daily loss that started out as a win and then turned into a loss. It confirms that bullish conviction is weak, and can even deflate would-be optimism.

That’s what took shape on Friday. The S&P 500 started out with a gain, following through on Thursday’s rebound move. The effort faded halfway through the session though, leading to a third loss in four days. The VIX made a mirror-image move, underscoring the premise that the undertow is indeed turning bearish.

S&P 500 Daily Chart, with VIX, Volume

Source: TradeStation

There’s not a whole lot of supporting evidence to that argument though… at least not yet. The S&P 500 appears to be finding good support at its 20-day moving average line (blue), and it’s not like the VIX is roaring higher. The support it mustered last week is more or less what one would expect to see at an established floor. It would need to push through the ceiling near 18.0 – which doesn’t mean a whole lot anymore – to really impress bearishness here, and the S&P 500’s 20-day moving average line would need to fail as a floor.

Even then though, the market’s got plenty of other technical floors that could easily stop any bleeding.

As usual, the weekly chart puts things in perspective. It also highlights that fact that the peak from Monday was given shape by an encounter with an established technical ceiling that extends back to the early 2018 high. Though seemingly arbitrary, it would be unwise to ignore the psychological impact of such developments. Clearly the majority of traders took it seriously enough to begin taking profits there.

S&P 500 Weekly Chart

Source: TradeStation

And for the record, the NASDAQ Composite’s chart looks about the same as the S&P 500’s, for better or worse. One noteworthy difference though… the VXN wasn’t pushing higher like the VIX was, and the NASDAQ didn’t close below its prior week’s low. It doesn’t matter a great deal in the current scenario, though.

NASDAQ Composite Weekly Chart, with VXN, Volume

Source: TradeStation

It’s a situation that largely sets the stage for more frustration.

The fact of the matter is, the current condition of any of the charts doesn’t tell us much. We know stocks are overbought and ripe for a pullback, but they’ve been in that situation before to no immediate avail. We also know that even with the technical odds saying we should expect some weakness here, the reality it, headlines and sentiment have meant so much more than any technical cues and clues of late. That can defy and override much of what ‘should be’ happening.

Still, what’s unseen at this time is ultimately working against the market. That’s the fact that the second half of the third year of a presidential term tends to be weak, and stocks are entering that phase of Trump’s term already overbought. Throw in the fact that Q2’s GDP growth pace fell rather dramatically and the fact that we need start lowering interest rates, and it’s difficult to say that we’re not at least a little bit on the defensive.

The smart-money move here is to do nothing. The broad market is on the fence. Let the masses tip their hand first. It costs little more than time to do so.

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