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Bull-Bear Debate: 5 Crucial Factors to Consider in the Short-Term
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Entering 2023, investors had concerns over a beaten-down tech sector, geopolitical risks like the war in Ukraine, the debt ceiling limit, higher inflation, rising interest rates, a regional banking crisis, and a pending recession. However, as evident by the price action thus far, Wall Street is bent on fooling the masses. True to its usual form, equity markets have manipulated the masses, brushed off the fear-mongering, and have climbed the proverbial “Wall of Worry.” After the beatdown that tech stocks endured in 2022, few anticipated returns of nearly 40% at this juncture of the year in the Nasdaq 100 ETF (QQQ - Free Report) ).
Image Source: Zacks Investment Research
Now, after such a dramatic run in U.S. equities, the big question remains what happens from here?
Below are Short-Term Factors to Consider:
Confluence Zone: To investors, a price and volume chart is as essential to success as an X-Ray is to a doctor. In the short -term, the S&P 500 Index is approaching a critical “confluence level”. In technical analysis, a confluence zone is an area where two or more technical levels intersect. Traders use Fibonacci levels to determine potential price targets. While the tool can be controversial in its robustness, it is a highly watched technical level. Nevertheless, either way, because enough traders use it, it morphs into a “self-fulfilling prophecy”. On the weekly chart, the S&P 500 Index is running into the 1.618 extension level from the February correction.
Image Source: TradingView
If you scan your eye directly left on the chart, you will see the S&P 500 Index is simultaneously running into a large band of resistance from 2022.
Sentiment: The CNN/Fear and Greed Sentiment Indicator is a measure that combines seven different market indicators to assess the overall feeling and emotional state of the market. Currently, the indicator is at the Extreme Greed level and the greediest levels of 2023.
Gravity / Extension: Earlier this year, QQQ had one of the most considerable divergences from the Russell 2000 Small Cap Index in its history.
Image Source: Zacks Investment Research
Now, QQQ is extended by more than 10% above its 50-day moving average – a difficult extension level to sustain.
Overbought Levels: The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movement in an asset, indicating whether it is overbought or oversold. The QQQ’s RSI is at the most overbought level in over a year.
Image Source: Zacks Investment Research
Key Leaders Approaching Resistance: Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) , two of the strongest and most prominent market leaders, are approaching all-time highs. Typically, when a stock recovers to its all-time highs after an extended drawdown, it encounters initial sellers. Because of their heavy weightings, some digestion in these leaders could mean digestion in the overall market.
Image Source: Zacks Investment Research
Summary: Many short-term indicators point to a market that could use rest or digestion. However, investors should keep in mind that precisely predicting a pullback can be a challenging endeavor. For example, in the infant stages of bull markets (like now), overbought levels can become more overbought. That said, investors need to keep an odds-focused mindset. While it may be too soon to call for a pullback, the risk-reward on the long side is not as favorable as it was earlier in the year before the strong move higher in equities. Be patient and wait for your pitch.
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Bull-Bear Debate: 5 Crucial Factors to Consider in the Short-Term
Entering 2023, investors had concerns over a beaten-down tech sector, geopolitical risks like the war in Ukraine, the debt ceiling limit, higher inflation, rising interest rates, a regional banking crisis, and a pending recession. However, as evident by the price action thus far, Wall Street is bent on fooling the masses. True to its usual form, equity markets have manipulated the masses, brushed off the fear-mongering, and have climbed the proverbial “Wall of Worry.” After the beatdown that tech stocks endured in 2022, few anticipated returns of nearly 40% at this juncture of the year in the Nasdaq 100 ETF (QQQ - Free Report) ).
Image Source: Zacks Investment Research
Now, after such a dramatic run in U.S. equities, the big question remains what happens from here?
Below are Short-Term Factors to Consider:
Confluence Zone: To investors, a price and volume chart is as essential to success as an X-Ray is to a doctor. In the short -term, the S&P 500 Index is approaching a critical “confluence level”. In technical analysis, a confluence zone is an area where two or more technical levels intersect. Traders use Fibonacci levels to determine potential price targets. While the tool can be controversial in its robustness, it is a highly watched technical level. Nevertheless, either way, because enough traders use it, it morphs into a “self-fulfilling prophecy”. On the weekly chart, the S&P 500 Index is running into the 1.618 extension level from the February correction.
Image Source: TradingView
If you scan your eye directly left on the chart, you will see the S&P 500 Index is simultaneously running into a large band of resistance from 2022.
Sentiment: The CNN/Fear and Greed Sentiment Indicator is a measure that combines seven different market indicators to assess the overall feeling and emotional state of the market. Currently, the indicator is at the Extreme Greed level and the greediest levels of 2023.
Gravity / Extension: Earlier this year, QQQ had one of the most considerable divergences from the Russell 2000 Small Cap Index in its history.
Image Source: Zacks Investment Research
Now, QQQ is extended by more than 10% above its 50-day moving average – a difficult extension level to sustain.
Overbought Levels: The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movement in an asset, indicating whether it is overbought or oversold. The QQQ’s RSI is at the most overbought level in over a year.
Image Source: Zacks Investment Research
Key Leaders Approaching Resistance: Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) , two of the strongest and most prominent market leaders, are approaching all-time highs. Typically, when a stock recovers to its all-time highs after an extended drawdown, it encounters initial sellers. Because of their heavy weightings, some digestion in these leaders could mean digestion in the overall market.
Image Source: Zacks Investment Research
Summary: Many short-term indicators point to a market that could use rest or digestion. However, investors should keep in mind that precisely predicting a pullback can be a challenging endeavor. For example, in the infant stages of bull markets (like now), overbought levels can become more overbought. That said, investors need to keep an odds-focused mindset. While it may be too soon to call for a pullback, the risk-reward on the long side is not as favorable as it was earlier in the year before the strong move higher in equities. Be patient and wait for your pitch.