U.S. Stock Market Looks Tired

Just a quick note here this afternoon, Sunday, November 27, 2022.

The U.S. stock market looks tired to me after a decent "counter trend" rally since the reaction lows of mid-October. The popular S&P 500 ETF (symbol SPY) has rebounded 15.58% since its intra-day low as posted on October 13th.

As you can see from the chart below, potential resistance to any further advance comes in the form of the overhead (and downward sloping) 200-day moving average line and also a fairly significant downtrend line.

While I am unconvinced that a major new decline will reassert itself here, I do believe that the odds favor at least a consolidation of recent gains if not an actual minor correction to potentially retest the recent lows as set in mid-October.

For some strange reason, the U.S. Federal Reserve seems to be working against the bullish case for stocks with hawkish comments almost daily regarding the near-term trajectory of short term interest rates. While it's obvious to me that a U.S. recession is imminent and that a meaningful peak in inflation has already been posted, Federal Reserve officials seem to feel obligated to warn investors that inflation is still a major problem (when it's not) and that an imminent economic recession is not likely (even though it is).

It might be prudent for traders and investors to exit any long positions now (except gold) in favor of a sideline stance while Fed officials continue to fight the last war (inflation) and not the next war (recession and unemployment).

S&P 500 Index ETF (SPY) with 200-day Moving Average Line

US Stock Market - Buy Signal Triggered on October 13, 2022!

A daily chart buy signal was triggered in my proprietary trading system in the S&P 500 Index ETF (symbol SPY) and also the Nasdaq-100 Index ETF (symbol QQQ) at the close of trading on October 13th, 2022. Despite a downside reversal in most share prices on Friday, October 14th, this latest buy signal remains intact.

Rarely have I seen so much bearish sentiment among often-wrong traders and investors, which must be considered a meaningful contrary indicator favoring a significant bounce in share prices over the very near term.

While the bearish case is compelling for stocks (i.e. hawkish Fed, historically high inflation reports, the war in Ukraine, potential nuclear armageddon, threats from China relating to Taiwan, and more), I believe that most of the potential bad news for stock prices is already discounted at current levels where the S&P 500 is now down about 25% for the year so far. 

Bears outnumber bulls by almost 3 to 1 in the latest sentiment figures from the American Association of Individual Investors, and most pundits and one very loud former U.S. Treasury Secretary are calling for significantly lower share prices ahead. Is there enough "blood in the streets" to justify buying stocks here? Probably Yes!

There is an interesting technical support level that was tested last week in the S&P 500 Index. Fifty percent (50%) of the gains in the S&P 500 Index, from the panic low posted in late March 2020 to the bull market top set in early January 2022, were retraced at one point in last week's price action. Is that enough "blood" lost to serve as a catalyst for a decent rebound here? Again, probably Yes!

Here are two interesting charts for your review:

S&P 500 Index ETF (SPY) with Daily Chart Buy Signal on October 13th

Nasdaq 100 Index ETF (QQQ) with Daily Chart Buy Signal on October 13th

Gold Buy Signal

At the September 30th close, weekly chart buy signals were triggered in the popular Gold ETF (symbol GLD) and in the Gold Mining ETFs (major gold mining stocks ETF symbol GDX and the junior gold mining stocks ETF symbol GDXJ).

While the S&P 500 Index ETF (symbol SPY) fell 3.02% last week, the Gold ETF (GLD) rose 1.08%. Against that backdrop, most gold and silver mining share prices soared!

The Major Gold Mining Shares ETF (symbol GDX) jumped 7.49% last week, and the Junior Gold Mining Shares ETF surged 9.07%.

Bottom Line: A major new bull market in gold, silver, and related precious metals shares has clearly begun. Gold and Silver mining shares could easily double over the next 12 months as the Federal Reserve pivots from its current hawkish monetary policies toward a more neutral-to-dovish posture in the face of increasingly disturbing (recessionary) economic data to be reported on the very near term horizon and over the weeks and months immediately ahead.

Gold ETF (symbol GLD) with Proprietary Weekly Chart Buy Signal

Major Gold Miners ETF (symbol GDX) with Weekly Chart Buy Signal

Junior Gold Miners ETF (symbol GDXJ) with Weekly Chart Buy Signal

Oversold !

The U.S. stock market looks oversold and ready for a meaningful bounce!

Sentiment indicators clearly point to a rebound. There is currently too much bearish sentiment among often-wrong investor groups.

Put volume set an all-time record on Friday, September 23, which stands out as the best contrary indicator in this market at this time.

Traders and investors are understandably fearful of the dramatic hawkish turn from the Federal Reserve in recent weeks following worse-than-expected August inflation numbers.

However, I don't believe that Fed Chairman Powell and his team are ready to back up their inflation-fighting rhetoric with continued hikes in interest rates when recessionary data builds in earnest and when "deflationary" forces begin to prevail over the next few weeks and months.

The obvious best asset play for when the Fed "blinks" is in the precious metals sector, with silver and silver-related mining stocks probably leading the way higher.

Even though gold and silver look best here, "all boats" will rise when the Fed rhetoric changes from hawkish to neutral which I expect will happen over the very near term. The Nasdaq-100 Index will probably lead the way higher in the general market when the Fed turns as tech stocks rebound sharply.

Nasdaq-100 Stock Index Daily Chart with 200-day Moving Average Line

Nasdaq-100 Stock Index Weekly Chart with 200-week Moving Average Line