Neartermed pullback

January 31, 20244 Comments

Today at 2:30 pm EST, Fed Chair Powell will deliver the talking notes from this months meeting. No immediate rate moves are expected by the Fed, but investors will be listening for any hints of forward moves. The market is forward looking, so such Fed-speak could influence neartermed market moves. Whatever the result of today’s meeting, the current status is overbought for the major US market indices. Particularly for the NASDAQ / tech.

Keith’s neartermed trading system

Below is a daily chart of the SPX with my neartermed trading signals annotated. The neartermed system is not designed to be predictive of longer termed trends. As the name implies, its looking for neartermed rallies or pullbacks only.

Basically, we’re looking for overbought (or oversold) signals by Bollinger Volatility Bands, Stochastics and RSI. The deeper these indicators are in their respective overbought/oversold zones, the more significant. I’ve indicated a couple of “deep” overbought signals given by my system over the past year–with corresponding market moves circled in red. Note that the SPX is back into the same conditions that led into past pullbacks.

Its worse for the NASDAQ

With several of the Mag-7 stocks giving mediocre guidance this week, the NAZ is pulling back. The 3 indicators I use in my neartermed system are rounding over, as noted by my arrows.

 

My two cents worth

The tech stocks may lead the SPX and NAZ a bit lower in the nearterm. However, it would probably take significant hawkish Fed speak, or something else fundamentally dismal to influence a larger breakdown at this moment. To me, this is likely a trading opportunity to buy a few stocks. I’ll be looking for some upside into the seasonal peak period this spring. Then, we’ll need to see where the risk/reward balance stands.

 

 

4 Comments

  • Thank you Keith,

    Another thing that we can keep an eye on is the inversed correlation beetween the $SPX and the $TNX ($TNX inversly leading a little bit the $SPX in general). Lately, the $TNX trended up since the end of december… and the overpriced $SPX still went up. I expected it to correct. Maybe today will be the inflexion point starting the correction on the markets. That would be my bet. But we’ll see…

    Reply
  • Hi Keith,
    What do you think? Was J Powell’s answer to the question of a March interest rate cut not being the base case scenario, and unlikely, enough of a reason for markets to continue to sell off with the S&P heading back to the 4,600 level? Clearly, it was enough for markets to start to sell off today. 🤪

    Reply
    • Hard to say–street is rethinking his statement from yesterday now–so I am going to default to the charts and say its a little overbought and see if it pulls back a bit more.
      BTW–today I will be recording a video on the Fed and bond outlook–s/b published in a week or so

      Reply
  • i think it will take some very bad economic news to pull the market down below the double top break out point. My guess is that market will push up to 5000 or so and then correct back but not below the break out point and then go sideways for a bit and then continue on above 5000.

    Reply

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