In this article:

• Market internals are the signals to watch
• Positives, and negatives fight for market leverage
• Consumers dig in and spend despite inflation

The stock market rallied Friday on news of stronger retail sales and major banks showing strong earnings.

Are these signs an invitation to close the week with a positive outlook on the trading world?

Or do traders still have work to do before this summer heat cools off?

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

4 stock market signals to watch

This market has been hot in both directions with fiery rallies and gaps down that can burn through trading accounts.

After the rally Friday, financial media pundits and analysts are calling for getting back into buying, but is it too early?

Simpler’s traders (who trade their own money) still hold to the idea of an overall bearish stock market, and are daily assessing what keeps this see-saw market from pushing lower. Rallies like today can be a brief emotional boost in a bear market than can rip away short-lived gains.

Broadening the view of market action helps Simpler’s traders gain a clearer picture of movement. Market internals such as the $ADD, $TICK, VIX, and put-call ratio offer insight into the structure of the market and what moves may be on the horizon.

Take a look at these internals:

• $ADD – Advance/Decline Line (ADD) indicates whether stocks are trading above or below their prior close. This internal signal defines a sense of overall movement in the market. During a rally, the $ADD indicator would be above zero (positive) showing that most stocks are up for the day. An $ADD signal below zero (negative) shows most stocks are moving lower for the day.
• $TICK – This measures upward or downward movement in price for a security, or how fast assets are bought and sold. These can be seen by levels and zones – zero shows the market chopping sideways; upper zones show from $600 to $1,000; and lower zones show from -$600 to -$1,000. Continually negative $TICK indicates more selling than buying, or bear market conditions (lower zones).
• The Chicago Board Of Exchange (CBOE) Volatility Index (VIX) index anticipates market volatility over the next 30 days. The VIX is considered the “fear” index and has been trending lower the last week, ending near 24 today. A level above 20 is still considered high volatility – more fear in the market. Simpler’s traders have estimated the VIX could be on a trajectory to spike as high as 40-50 within the next six months and possibly as high as 100 by October, 2023.
• The put/call ratio is the ratio of the volume in trading between put options trading and call options trading. The put/call ratio helps measure market sentiment, i.e. whether traders are buying more call options in a bullish trend or buying more put calls in a bearish trend. 

Monitoring internal market signals help traders build setups as they confirm market direction and develop confidence in how fast a move might unfold. This all helps gain an edge in trading.

When traders combine market internals with meaningful data (reports such as the Consumer Price Index, Nonfarm Payroll, and retail sales results) and news events (such as Federal Reserve plans), they develop a trading plan rooted in a stronger process. This process is a necessary part of a well-developed trading plan.

A solid trading plan should be less about what the media presents and more about actual data that supports staying on track with technical analysis.

Why trade alone against the news?

Trading requires learning skills and diligent research, and at Simpler Trading we understand the time commitment to trade well.

We started the Simpler Options online trading chat room years ago to help traders find out more about who we are in the world of trading.

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Positives, negatives fight it out in market

The market produced a variety of positive signals on Friday.

Simpler Insights has been watching technology stock Apple, Inc., (AAPL) which has gained some solid footing after moving back above its 50-day moving average. The technology sector leader still faces analyst downgrades to company earnings for this year and next with second quarter earnings expected at the end of July.

Simpler’s traders have held that if Apple falls the market could be headed downward. Here’s action in Apple which closed today at: $149.41 (up .63%). Apple grew from a pandemic low of $57.21 in March 2020, but is down from $182.01 since Jan. 1. Apple is a high-value stock within the Dow, Nasdaq, and S&P 500.

Several large banks reported earnings on Friday and were rewarded with spikes in stock price.

Citigroup (C) second-quarter earnings report topped analysts’ estimates and the stock closed at $50.14 on Friday (up 13.76%). JPMorgan Chase, Wells Fargo, and Morgan Stanley all closed with higher stock prices on Friday.

Of the four larger banks reporting this week, only Citigroup matched or exceeded expectations for revenue. The others fell short from a combination of missed revenue, bad loans, and stock buyback plans. All these major banks’ stock is down for the year, some by more than 20%.

Results for retail sales – everyday goods such as food and gasoline – were another positive on Friday.

As inflation holds at a 40-year high, American consumers dug into their wallets to boost retail sales higher in June by 1% overall, according to the U.S. Census Bureau. The number exceeded expectations by .1%.

But just like the banks, retail sales results hint at a “deeper dive” that exposes a less positive underlying sentiment than the emotional stock market rally on Friday.

“Real” retail sales – specific segments such as auto sales, stores (health, personal care, general merchandise), building material and garden equipment and supplies – were all down in the latest reporting.

These lower numbers offer insight into the “real” appetite of American consumers who are facing high inflation and less buying power from wages.

This is underscored by the GDPNow forecasting model from the Federal Reserve Bank of Atlanta. Figures released on Friday show the latest estimate for second quarter U.S. real gross domestic product (GDP) growth is -1.5% (down from -1.2 on July 8). Combine this result with the 1.6% GDP decline in the first quarter, and the back-to-back negative GDP numbers reveal a recession in play.

Final, official second quarter GDP results from the Federal Reserve are expected to be released on July 28.

As this bear market trudges along and whether they post good or bad numbers, banks and consumer sales are key market components to follow in any trading plan.

Do you want to trade with a professional?

This stock market has presented some testy waters for retail traders, especially those looking for a way to trade with a professional.

Simpler Trading put together an online community like never before – a free trading room.

This online training chatroom is designed to allow traders to experience the insight from a professional trader during live market hours.

There is no cost to join, and this opens an opportunity to meet our team of traders working to share what they experience daily as stock market retail traders. Learn more today.

Checking on market personality

This market has Simpler’s traders taking news, events, and stock market reactions day-by-day. The goal is always to identify tickers showing momentum and setting up for directional plays.

Traders strive to wake up fresh each day, check the personality of the market, sectors, and securities and make the most of what the market gives.