This time IS different
- Miguel Ferreir (WizDayTrader)
- Feb 13, 2023
- 3 min read
Updated: Mar 9, 2023
What a Risk Off Environment reminiscent of 2001/2008 looks like.
What would it take for us to get bearish equities here and how can moving averages, the dollar and the volatility index help confirm that?
Please be sure to read the disclaimer on our site before moving forward, comment below and follow us on social media (Instagram, and twitter)!
Welcome new subscribers!
We've been bullish equities and Crypto since the beginning of the year as it's paid off handsomely! Bitcoin went up 57% since January, $META +70% since November, and Tesla up 100% since January. The risk and reward along with being patient has paid off handsomely.
Are we in a new bull market?
The majority of the signs are starting to suggest that we are as growth is now outperforming and all the stocks that were severely underperforming (think Microsoft, Google, Apple, Netflix, Shop, Ark, the IPO ETF ($IPO)) are now starting to go up in price. So what would suggest to us that we are in a new bull market and we expect it continue?
The $SPY ETF and $SPX monthly chart needs to break and stay above the 20 Simple Moving Average. This moving average when compared to prior cycles on the monthly chart has confirmed a continuation of the bear market in preceding years were we've failed to break above and hold over this moving average on a monthly basis.
We can see very simply that in the past previous recessions when the $SPY has failed to break above this critical juncture the market has moved lower and we've had recessions.
Simple, right? Right!
Now, we can zoom in on the $SPY daily chart and we are creating a bull flag here above the 20 SMA and while that is a great start there are 2 issues I have with that. (1) The MACD has crossed over which usually suggest a move towards to the downside and (2) we are running into an important Fibonacci number (50% retracement). So there's that possibility of a higher open on the CPI numbers when we print and then we fail to break and stay above $419 where we encounter previous supply. We also have $402 as support to measure against to see if that holds.
Taking a quick look at the $VIX, CBOE Market Volatility Index that measures the potential for bigger moves in the overall market as the $VIX increases in value, bottomed where we expected as the $SPY hit resistance which increased the likelihood of downward pressure on the market.
Will you look at that too -> below the $VIX is above the 20 SMA and that's when we really started to see the market move lower on February 9th, 2023! It's a clear indication of a risk on/off environment and if we hold above $18.56 I would suspect more risk and the market to become more volatile with larger trading ranges.
Many larger accounts on Twitter have indicated that you need the Dollar index to go stop going up in order to have a bull market. I am not sure if I am really buy into this theory, nonetheless the dollar ($UUP) has stopped going down and it an area of previous support, $27.28, and looks poised to retest $28.66 and potentially even $29.48.
To me this is one of the most important charts that doesn't get talked about much on Twitter. The High Yield Corporate Bond Market is one of the strongest indicators of whether we are seeing an appetite for risk in the markets. On February 2, $HYG hit our short term target and now it's right above its 20 SMA.
Surprise... surprise!!
We are also below the 20 SMA and 200 SMA here while sporting a bear flag, if we break and continue lower I would expect a recession.
Let's take the market one day at a time, we've got a lot of great information suggesting a bottom is in and if it's not then price will suggest and confirm to us otherwise.
As always I am happy to answer questions you have please comment on the post below or reach out to contact@essextradding.com, thanks!
Remember to trade confidently!
Comments