If you thought buying and holding an index exchange-traded fund (ETF) was a sure-fire way to make money, then 2022 has been a rude awakening.
After all, from March 2020 to the end of 2021 the S&P 500 Index (SPX) more than doubled.
However, since the start of 2022 the SPX has headed sharply lower. From its January peak to its June low, SPX lost 25% of its value.
But after bottoming out in June, the SPX rallied off the back of an earnings season that beat expectations.
Then, a lower-than-expected Consumer Price Index (CPI) further bolstered the rally as investors began to bet the Fed would slow down on increasing interest rates.
And the Jackson Hole summit firmly put that notion to bed. So today, we’ll see what’s in store for this major index.
A Dramatic Year
On the chart below, the 50-day moving average (MA – blue line) shows SPX’s long-term downtrend.
It began when the 10-day MA (red line) crossed below the 50-day MA in January…
S&P 500 Index (SPX)
Source: eSignal
Apart from a brief cross in March, the 10-day MA has bearishly stayed below the 50-day MA throughout most of the downtrend.
And the Relative Strength Index (RSI) has tracked in the lower half of its range (below the green line) throughout most of the downtrend as well.
But when the RSI went into oversold territory (lower grey dashed line) and formed a double ‘V’ in June, SPX rebounded higher.
Then, as the RSI broke back up through resistance into the upper half of its range, that rally gained momentum.
Soon after, the 10-day MA crossed back above the 50-day MA and began to accelerate.
But the buying momentum pushed the RSI into overbought territory (upper grey dashed line) and SPX’s rally petered out at ‘A.’
Then, after the RSI reversed and tracked back toward support, SPX’s pullback gained traction.
The Fed’s tough stance on interest rates at Jackson Hole saw SPX make another leg down. Now, the RSI is back in the lower half of its band.
After such a dramatic year, what can we expect next?
A Shock Is Coming
Let’s take another look at the chart…
S&P 500 Index (SPX)
Source: eSignal
Unless the RSI breaks back above resistance – and remains in the upper half of its range – we can expect this down move to gain traction.
And the longer it stays in this lower range, the longer this down move will continue.
If the 10-day MA crosses back below the 50-day MA, then it’ll add further bearish sentiment. Such a move could see SPX retest its June lows and set us up for a short trade.
But regardless of the moves SPX makes from here, right now I’m gearing myself up for another type of trade…
It deals with a big market shock I predict will hit us soon.
Most people have no clue it’s coming, but Wall Street is already preparing for it as we speak.
That’s why next week I’m setting up an urgent briefing to show readers how we’ll profit on what’s going on behind-the-scenes.
Being prepared could mean the difference between sinking further into the red… or getting back in the black for the year.
If we act quickly, we can flip the coming chaos into large gains.
In fact, I’ve used this strategy over the last couple of years to generate double- and triple-digit returns.
I’ll share all the details next Wednesday, September 7 at 8 p.m. ET. And I’m inviting all my readers to attend.
To make sure you’re not caught off guard, simply click right here to reserve your spot.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
Reader Mailbag
In today’s mailbag, a reader gives us his analysis on the retail sector’s next move…
I don’t have tremendous knowledge on trading with moving averages. But in my opinion, the SPDR S&P Retail ETF (XRT) is heading back toward the orange line. It’ll certainly have to pass through the 50-day MA and should hesitate at that point.
Initially, a good stop would be at ‘B.’ If it breaks the 50-day MA, then I would lower my stop to somewhere between my selling price and the 50-day MA.
– Michael G.
Thank you for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].