Momentum and Sentiment Update – 10/14/22

Weekly momentum and daily sentiment indicators show that stock market bears could be losing  strength.

The blog “Dramatic Reversal – 10/13/22”  noted that S&P 500 (SPX) daily Stochastic, RSI , and MACD all had bullish divergences.  Longer – term momentum oscillators  also have bullish divergences.

The weekly SPX chart courtesy of BigCharts.com illustrate the additional evidence.

Weekly MACD has bullish divergence on both the Histogram and lines.  The RSI has a bullish divergence vs. the mid – June 2022 and late September readings.

BigCharts.com Slow Stochastic is very effective in spotting trend changes on any time scale.  Weekly Slow Stochastic as of mid – October was very oversold and had a bullish lines crossover. Note the deep oversold reading in May 2022 and the subsequent bullish lines crossover.  This signal preceded a two-week rally.  There’s   a  high probability the current signal could herald at least a two- week rally.

The daily SPX chart courtesy of Trading View updates two sentiment indicators.

The top chart is the Put/Call ratio – Trading View symbol (PC).  Investors Business Daily uses readings above 1.15 as a signal for potential US stock market bottoms.

On 10/13/22 PC went above the 1.15 level and diverged against the mid-September reading.  This shows a lessening of panic which is fascinating  from two aspects.  First, SPX prices were  lower on 10/13/22 vs. the 09/16/22 PC reading.  Second, the SPX drop percentage on 10/13/22 was greater than on 09/16/22. Both of these factors should be generating  greater fear and  a higher  PC reading. 

Of course, in the near-term the PC ratio could spike above its 09/16/22 level. For  now, there is a divergence and a hint that perhaps stock market sentiment is shifting to the bullish side.

Data  from the daily VIX  also shows a bullish divergence, confirming the PC reading.

The biggest factor in favor of the bears  is the calendar.  Mid – October is when some of the largest drops in the US stock market have occurred.

There are not many US economic reports due from 10/17/22 to 10/21/22. The reports that are coming  this week are  usually not big  market movers.  Unless some unexpected bearish event occurs, there’s a high probability that US stocks  could rally for at least two weeks.   

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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