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Muddy Market

I had a mentor that would sometimes tell me that my explanations were “clear as mud.”

We’re currently in a “muddy market.”

I forecast using charts.  The attached chart is an illustration of one of the charting methods I use.  This is a year-to-date chart of the S&P500 SPY exchange traded fund superimposed with trend lines representing three forecasted periods. (Marked 1,2,3)

Period 1:  mid-February to end of April forecast based on January/February data

Period 2:  first two weeks of May forecast based on February/April data

Period 3:  mid-May to end of June forecast based on April/May data

The market performed very bullish during Periods 1 & 2, always trading above the neutral zone (blue horizontal lines).  The market changed personality during Period 3, trading above, in, and then below the neutral zone.  But always within the upper and lower boundaries (red horizontal lines).

Now the SPY looks like it has bounced off support at $156 and is headed up.  But there are concerns.  Trading volume is weak, possibly indicating the lack of institutional investor conviction.  Even more concerning is the circular reasoning used to explain market advances.  Positive news is interpreted as the economy is in recovery…negative news is viewed as assurance the Federal Reserve won’t stop Quantitative Easing (QE).  Investors seem to be ignoring persistent recession in Europe and slowing growth in China. The market only fears the end of QE.

I have no idea which way the market will turn.  Price patterns seem to indicate that it will stagnate sideways or trend down this summer.  It’s clear as mud.

S&P500 Muddy Market 160626