Opinion: Three ‘tiebreakers’ that will determine if stock market bulls or bears are right

I recently wrote: “This S&P 500 chart shows the market is at a critical juncture.” Since then, I have received emails and phone calls from investors amazed at how the market ran up to the line shown on the chart in that story, fell and then rose right up to the line again.

After having witnessed firsthand the power of this simple chart, many have been asking for an update. So let’s explore with an updated chart.

Chart
Please click here for an updated chart of S&P 500 ETF SPY, +0.35% It tracks the S&P 500 SPX, +0.33%  Please note the following from the chart:

• Market bulls are trying to beat the bears into submission.

• Bears look at the potential double top shown on the chart and stand their ground. A double top would be a big negative.

• The low volume shows that neither bulls nor bears have great conviction.

• The result of this bull-bear battle is a churning market.

• Often in a situation like this, the relative strength index (RSI) is a helpful indicator. In this case, RSI can go either way.

• Divergence in RSI from the last peak shows that momentum has waned. This favors bears.

• Not shown on the chart, but many other market internals we watch at The Arora Report, favor the bulls.

• The pattern looks different for the Dow Jones Industrial Average DJIA, +0.43% Nasdaq 100 ETF QQQ, +0.02% and small-cap ETF IWM, +0.43%

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Tiebreakers
As the market churns, the tiebreakers fall into the following three categories:

• The macro picture. On the positive side, trade war tensions are lessening. On the negative side, emerging market currencies are in turmoil.

• Fundamentals. The U.S. economy remains strong. Fundamentals in China are weakening. Please see “The biggest contagion risk to U.S. stocks isn’t Turkey — it’s an already-deteriorating China.”

• Market leaders. Walmart WMT, -0.80% is resurgent. There is strong buying in Apple AAPL, +2.00% Amazon AMZN, -0.23% is churning. There is selling pressure in Facebook FB, -0.52% Alphabet GOOG, -0.46% GOOGL, -0.67% Microsoft MSFT, -0.06% and Netflix NFLX, -1.76% The semiconductor group is deteriorating. Earning projections are poor from Nvidia NVDA, -4.90% and Applied Materials AMAT, -7.72% Intel INTC, -0.15% and Micron Technology MU, +0.02%  are facing pricing pressure. AMD AMD, +2.28% remains a favorite of the momo crowd, but the smart money is selling it. Tesla’s TSLA, -8.93% stock is under pressure. Please see “Money flows of 11 popular tech stocks show Alphabet and Apple getting stronger.”

Investors should not make decisions based only on the chart. It’s wise to look at a more comprehensive model with a proven record in both bull and bear markets. That includes the ZYX Global Multi Asset Allocation Model, which has 10 inputs.
Source: https://www.marketwatch.com

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