In this article:

• Are traders expecting the relief rally to hold?
• The pullback could signal bigger concerns
• Don’t miss these calendar events

Do traders believe the relief rally last week signaled the end of the bear market?

This bear likely has more bite to deliver.

As with past bear markets, short-lived relief rallies are often part of a continuing downtrend as the bear market fights to maintain its hold.

Simpler’s traders are following closely how internal signals and news events affect this chop-happy bear market.

(Check out the free video, above, for insight into trading this changing market.)

Did relief rally weaken bears’ grip on the stock market?

Behind the rally across the board in the major indexes last week were signs of a bear market grip on what lies ahead. 

The key index – S&P 500 – gained 6.5% last week, pushing above its 10-day moving average and less than 1% away from a possible move back above its 21-day moving average. Weak economic news was viewed as positive positioning for stocks as growth could be slowing and inflation leveling in the near term.

Stocks appeared ready to rally further with all sectors gaining ground (except energy which fell along with a drop in oil prices). Interest rates also appeared positive as investors looked for a cooling in aggressive policy from the Federal Reserve.

There was also a boost in growth stocks while defensive stocks outperformed to end the week.

The question through the weekend was, “Will the rally hold?”

Taking a step back, traders were suspect of a continuation higher.

Broader market and economic conditions are similar to the failed follow-through days in March and May, so this new uptrend was viewed as having near-term upside potential mixed with a large portion of long-term caution.

There has been a lack of quality leadership stocks – those with strong growth prospects – not meeting expectations. Successful follow-through days exhibit identifiable leadership groups with a number of stocks breaking close to or beyond internal targets.

And, despite the rally, high inflation and undetermined Fed actions ahead – which pushed the market into bear territory – have not been resolved.

At this point the bears are edging out a win against the bulls, even after the spike higher on Friday.

In the market today, the Dow closed at 31,438.26 points to fall .20% (dropping 62.42 points on the day). The Nasdaq dropped to 11,524.55 points for a .72% setback while the S&P 500 was under by .30% to 3,900.11 points.

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How will the stock market handle the pullback?

Which side controls the market in this bulls vs. bears contest depends on how the market handles the pullback.

Bullish opportunities are leaning into the intraday time frames such as the 15-minute and hourly. Simpler’s traders are watching for these time frames to “behave like trend” for a while by holding pullbacks to rising 21 exponential moving average and 50 simple moving average trend support.

If pullbacks to intraday trend support do not hold, that begins to invalidate a short squeeze and the predominant daily and weekly downtrends will prevail.

Like the Monday slide backward, bear market rallies tend to be bold and impulsive – a spike that suffers a sharp bite.

Simpler’s traders are watching the U.S. dollar for any signal of a sustained, “Summer Rally” that might hold for weeks. The dollar would need to break down to key lower levels to really help the bulls’ case and any possibility of pressing the squeeze and closing the gaps.

If bulls can’t wrestle to gain the advantage in this fight, then the opposite could play out in a very quick and volatile move. The bulls will know the fight is lost if intraday and daily pullbacks on key sectors such as technology fail to hold the pullback to hourly trend support.

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Don’t forget to update the calendar

Why are we continually watching the calendar?

Because events like these have proven to fire up the market with bears in control. Key announcements and data reports are scheduled for release.

What to watch this week:

• Tuesday – Consumer Confidence Survey® results released.
• Wednesday – European Central Bank (ECB) president speaks; Bank of England (BOE) governor speaks.
• U.S. Federal Open Market Committee (FOMC) president speaks.
• Thursday – U.S. Core Personal Consumption Expenditures Price Index (PCE) released.
• Friday – ISM® Report On Business® – Manufacturing (PMI®) is released.

And more events are expected next week that include Organization of the Petroleum Exporting Countries (OPEC) meetings; FOMC meeting minutes press release, Job Openings and Labor Turnover Survey (JOLTS) numbers released; and Nonfarm Payroll (NFP) numbers released.

All of these news events can spark rapid movement in the market based on the positive or negative context that is released. In this bear market, these events have proven to set off sharp moves. Traders who want to trade these events should be prepared and know the risk.

Scan for stocks during bear market

This wild market means price action moves quickly, and traders need an automated tool to track key stocks.

Stock scanners work within computer software to evaluate signals on a stock chart that follow specific targets set by the trader. Computers can track many companies around the clock and maintain a trading watchlist focused on a trader’s personalized setups and strategies.

This helps traders quickly disregard stocks they don’t want and concentrate on stocks with potential.

Watch for ‘pop up’ trends in wild market

In this ongoing see-saw market, traders should avoid getting caught when tickers are overbought.

The “summer lull” has been anything but static so far, and Simpler’s traders are expecting even more volatile action in the weeks and months ahead. This market has a long way to go before settling into any sustained uptrend that so many traders long for these days.

Sticking to shorter time frames, tracking moving averages, and watching for quick “trends” that could pop up in the market is the hot play this summer.