Markets closed out the week consolidating after being stomped out near the 3915 region. The financial market closed out the first half of '22 as being the worst start to a year since Jimmy Carter was president. A confidentially a similar backdrop from 1970 presents itself today. Runaway inflation with an energy policy has produced an energy crisis. The book is closed on June 22 and all major indexes have posted similar performance losses of around 6 to 8%. If looking at year-to-date, the S&P 500 is down more than 20%. Crude oil which has rallied for most of the year has had it's first loss for the month. With the Fed just starting the rate hikes and July earnings around the corner, there is a lot of downward pressure on the markets today.
Big Picture
For 2022, it has been a text box technical picture for the financial markets. After rallying off the March 2020 lows, markets have retreated and each attempt at a rally has been met with strong resistance to the downside. The image below shows eight failed rally attempts by the bulls to take control of the market. The most recent one was from the June 17 rally off the lows. The failed rally was another text box attempt that was met at the 3915 resistance line. The S&P 500 rallied but failed to break through. It is now consolidating around the 3800 region.
Is the market set for a drop to retest the 3600 region? If we take a look at the automatic trendline produced below, it shows that the S&P 500 recent failure is now sitting at the lower level trend line (dotted green line). This support has held and if the S&P 500 can push above the average trend line(dotted blue line), then there is a high probability that in the next week or two it will be able to challenge the 4000 resistance zone.
Market Breadth
No need to paint a rosy picture here. Market breadth has been just downright bearish for the first half of the year. The dotted red box is reflective of that with more than 84% of stocks below their 200 EMA. However, there is a glimmer of bullish activity for this week. In the yellow dash box, the near-term readings are turning bullish with the 5 to 10-day ratio moving in the bullish territory. Now, overall market breadth is still abysmal but if market internals can start turning upward it would put a stronger emphasis on a near-term rally.
Market Sentiment
Market sentiment has been downright bearish for most of 2022. Other than some neutral readings, market participants have been in the fear mode for most of this year. That said, the recent readings are showing a near-term bottoming is taking effect on the markets. The image below highlights the MACD reading off BullGap's sentiment index. Sentiment has been consolidating which has historically indicated a high probability of a rally to come.
Market Outlook
Though there was a recent failure at the immediate resistance zone, markets have not dropped back to their lowest point set back in mid-June. The momentum index used by BullGap and the other technical readings are showing a clear sign of a consolidation pattern. And the intraday and daily timeframes are showing signs of bullish activity.
SPY
On 6/27, SPY failed to break resistance. It has since consolidated without breaking lower to end the week. The MACD is still positive and the intraday and daily time frames are showing bullish technical signs that a near-term rally could be in store for the coming week.
QQQ
QQQ was not able to hit resistance but failed around the 296 area. Like SPY, it also has a look of consolidation with near-term technical readings leaning bullish.
IWM
IWM hit resistance on 6/28 and like SPY it has a look of consolidation. Additionally, its intraday and daily technical readings are bullish.
Concluding
There are market pundits and news outlets predicting that the next move for the market is a drop to the 3400 region. Right now as it sits, the view here is that markets are consolidating. And if market sentiment continues to stabilize with the near-term bullish market breadth internals, there is a high probability that markets will rally (in the near term) to challenge the 3915 region. If the bulls can capitalize on this in the next week or two, there may be enough momentum to carry it to challenge the 4088 region.