US Economy in Recession – Stocks Rally

The 07/07/22 blog “Long -Term Momentum Implies a  Multi – Week Rally”  noted US stocks could rise into August with a bulls – eye target date of 08/22/22 for a potential peak.  The action of US stocks in the last week of July continues to bolster that theory.  What happened on 07/27/22 and 07/28/22 hints that stocks could continue to rise beyond August 2022.

On 07/27/22 the FOMC  again  raised short-term interest rates .75% to slow the economy and ease inflation.  Today, 07/28/22 it was reported that US – 2nd quarter Gross Domestic Product (GDP)  declined.  This  was the second consecutive drop in US – GDP, meaning  the US economy is now in a recession.  On 07/27/22 there was  a 2.6% rise in the S&P 500 (SPX).  The 7/28/22 GDP report was followed by a 1.2% SPX rally. 

The news  on 07/27/21 and 07/28/22 was the most bearish of 2022, yet the SPX had strong rallies on both days.  When a market or a stock has a contrary reaction to news its usually the sign of a significant trend change.  US stocks could not drop on very bearish news.  What kind of news needs to come out for the  down trend to resume?

The daily SPX chart courtesy of Trading View updates the action.

Daily RSI still has not reached the overbought zone.  The lower MACD  line has  marginally crossed the “zero” line.  Daily Stochastic is  in the overbought zone, this is the most sensitive momentum oscillator and could stay over bought for at least two weeks. 

The SPX has reached the lower end of the price zone of 4080 to 4220 noted in the 07/23/22 blog “ S&P 500 – Momentum Update – 07/22/22”.  If the SPX breaks above this zone – watch the declining trendline connecting the January and March 2022 peaks.   If the SPX breaks above this trendline and above the .618 retracement level at 4367.00 it could open the door for a move back to 4800. 

Published by Mark Rivest

Independent investment advisor, trader, and writer. Articles have appeared on Technical Analysis of Stocks and Commodities , Traders.com Advantage, Futuresmag.com, and Finance Magnates.

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