Stock Market Gains Strength For Bullish Upside

In this article:

• ‘Technical’ bull market now in play
• Technology, semiconductor sectors rebound
• Fed is wild card for bullish uptick

The Nasdaq beat back the bear last week and the three major indexes finished the fourth week in a row with gains.

The uptick continued Monday, so has this market turned a corner ahead of expectations on its way to a new bull market?

Market signals show bullish strength

The market has shown signs – four weeks of positive gains in the major indexes and key sectors pushing higher – that there is a base of strength to support the upside shift.

Internal market benchmarks are supporting this view with some of the strongest signals seen in some time.

By some accounts, 90% or more of the S&P 500 stocks are above the 50-day simple moving average (SMA) that signals a new bull market. The Nasdaq could be considered in a “technical” new bull market now that it’s up 20% off the June low.

Traders are watching how the bearish sell signal on the Nasdaq monthly chart is no longer showing. 

This creates potential short squeeze positions considering the size of moves in key stocks, some as high as 100% above the lows.

Volatility across the market appears to be waning with even bond volatility steadily declining, all of which is bullish for traders. The Volatility Index (VIX) – or fear index – has shown mixed readings following recent sessions. The VIX rose to 19.90 on Monday, below the 20-point threshold for high volatility, but up 2% for the day.

The stall in all the bullish movement may come with Fed meetings ahead. The Fed meets next week at the Federal Reserve Bank of Kansas City Economic Policy Symposium in Jackson Hole, Wyo., and at its regular meeting set for Sept. 20-21.

“Essentially the train can continue powering forward until something new is put on the

tracks, whether it’s the Fed saying ‘irrational exuberance’ or an external black swan (an unexpected, severe news event),” said Sam Shames, Vice President of Options at Simpler Trading.

“Things in the near term are wildly extended by any metric, but this is a staple of short

squeezes as these kinds of rallies give no room for shorts to exit gracefully,” Sam said. “The best entries will be found through patience on pullbacks to daily exponential moving average structure.”

Market uptick continues after reports

The stock market put negative consumer and producer report numbers in the rearview mirror quickly last week as traders enjoyed rising price action.

The uptick continued this week, despite a sharp gap down to start the session on Monday.

In the market today, the Dow closed at 33,912.44 points to gain .45% (adding 151.39 points on the day). The Nasdaq bounced higher to 13,128.05 points for a .62% rise while the S&P 500 was positive by .40% to 4,297.14 points.

The Nasdaq uptick follows the 3.1% gain last week despite the technology sector underperforming after a pullback in semiconductor stocks. The Nasdaq pushed beyond the technical bear market status by gaining more than 20% from June 16 lows.

Market gains last week followed data releases that showed signs that inflation has started to slow. Both the U.S. Consumer Price Index (CPI) and U.S. Producer Price Index (PPI) came in slightly below estimates, although still high in year-over-year tallies.

The CPI climbed by 8.5% in July, less than forecasts and down from 9.1% the previous month. Inflation still remains at 40-year highs.

CPI measures consumer costs for high-value staples such as housing, gasoline, utilities, and food. PPI tracks wholesale cost changes – the price of goods sold by manufacturers.

Reduced energy costs also contributed to the lower data numbers.

The aggregate price news helped ease expectations of a more aggressive Fed at its next meeting in September, and helped spur a rally that included most areas of the market.

The S&P 500 has been a highly-watched index among Simpler’s traders as the bears and bulls battle for dominance.

The S&P 500 gained 3.3% last week, pushing the index above major near-term resistance at

4170. With the internal signals in positive territory, the near term uptrend in the index is expected to hold.

If the S&P 500 breaks above the next level of upside resistance, expectations are for a reverse from the downtrend.

The caution is that a move back below 4170 would put the bite back into bearish considerations.

Upside movement in the S&P 500 is signaled by six of eleven S&P 500 sectors now trading above the 200-day moving average which is upside resistance. This is three times the number of sectors from the previous week.

Beaten down growth sectors such as technology and consumer discretionary are pushing toward a move above this key moving average.

Energy stocks are bolstering the overall market uptick. Energy stocks had some of the biggest gains last week with a 7.4% rally to move back into an uptrend. The gains came despite a price drop in crude oil which has fallen below its peak earlier this year. Crude oil closed down again at $88.96 on Monday.

Market moves require targeted plays

Traders need an automated tool to track key stocks as this hectic market reveals quick price action moves.

Stock scanners work within computer software to evaluate signals on a stock chart that follow specific targets set by the trader. Computers can track many companies around the clock and maintain a trading watchlist focused on a trader’s personalized setups and strategies.

This helps traders quickly disregard stocks they don’t want and concentrate on stocks with potential.

Technology stocks still flat but in play

Technology stocks sputtered last week despite positive news in the sector.

Keeping the sector on the upside were Microsoft (MSFT) and Apple (AAPL) which account for 40% in this sector. The technology leaders closed at $293.47and $173.19, respectively, on Monday, each up slightly on the day.

Renewable energy equipment stocks – solar panels, etc. – were big winners as well after outpacing the markets again last week.

What held back the technology sector was a sharp pullback in semiconductor stocks early in the week.

NVIDIA (NVDA) warned that second quarter revenues would fall well short of estimates (NVIDIA reports earnings on Aug. 24 after close). Micron Technology (MU) also reduced quarterly revenue outlook. Both announcements contributed to heavy selling among semiconductor stocks. NVDA closed up 1.73% on Monday at $190.32 while MU was down .52% at $64.70.

Lower growth outlook from NVDA and MU was muffled last week following U.S. legislation signed in the Chips Act which is expected to provide $52 billion in subsidies for semiconductor production and research. The bill is designed to help make the U.S. more competitive against China’s technology progress.

Get started with trading goals

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Will retailers boost market moves this week?

Several big retailers report second quarter earnings this week as this earnings season comes to a close and the broader market trends higher.

These include Walmart, The Home Depot, Target, Lowe’s, Kohl’s, Ross Dress For Less, John Deere, and Foot Locker.

Retailers previously sent the markets lower with their weak first quarter results and results that were less than expected. Simpler’s traders are watching how the second quarter reports influence the market and whether retailer results will offer insight into inflation pressure ahead.

Traders are also watching the impact from the release of the Federal Open Market Committee meeting notes on Wednesday. These releases often offer insights into future intentions of the Federal Reserve (Fed) relating to monetary policy ahead, particularly plans to raise benchmark interest rates in the fight against high inflation.

In the past, these FOMC notes have been market-moving.

Some traders argue the market already appears to have digested these reports, and the current uptick will continue. Still, unexpected news from these announcements has triggered the market to shift quickly.

Fed is wild card for market moves

Lower than expected inflation reports last week were a welcome relief for market participants looking for data supporting the idea that high inflation has peaked.

The wild card is the Fed which, to this point, is holding that continued lower inflation data will be needed before lowering planned rate hikes. 

Government policy can profoundly affect the stock market, and it remains to be seen how the market will ultimately react.