{"id":19346,"date":"2022-01-26T07:30:11","date_gmt":"2022-01-26T12:30:11","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=19346"},"modified":"2022-01-26T07:30:11","modified_gmt":"2022-01-26T12:30:11","slug":"the-markets-sold-the-rumor-is-t-time-to-buy-the-news","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/the-markets-sold-the-rumor-is-t-time-to-buy-the-news\/","title":{"rendered":"The Market\u2019s Sold the Rumor\u2026 Is It Time to Buy the News?"},"content":{"rendered":"

Last Wednesday, I pointed out a bearish price pattern in the S&P 500<\/a>.<\/p>\n

I warned that if the index were to break below the support<\/a> line of that price pattern, we’d likely be looking at a selloff back to around 4306, the lows from October 2021.<\/p>\n

We did indeed break below that important support line. And in Monday’s trading session, the S&P 500 fell as low as 4222 on an intra-day trading basis.<\/p>\n

But, the sale of risk-on assets hasn’t been limited to the S&P 500…<\/p>\n

The Nasdaq sold off as much as 12% since last week, and the crypto markets suffered a staggering $1 trillion loss with bitcoin dipping to prices not seen since July.<\/p>\n

The market is rattled. That much is clear.<\/p>\n

And now, all eyes are on the Fed as it prepares to release an updated statement today at 2 p.m. ET.<\/p>\n

It seems like the market is waiting on the Fed to provide some clear direction in the face of the persisting inflationary challenges.<\/p>\n

But I don’t think it’s that straightforward.<\/p>\n

And technical analysis<\/a> can really shine in situations like this.<\/p>\n

For example, in last Wednesday’s essay<\/a> we were able to identify the key support level in the S&P 500. The market poked beyond that level of 4306 by a relatively modest 84 points before it stabilized.<\/p>\n

Regardless of what the Fed says, the technicals tell me that this market is oversold and is more likely to bounce than to continue crashing down – at least in the short term.<\/p>\n

Here’s an updated daily chart of the S&P 500. This time, I’ve included two technical indicators, Bollinger Bands<\/a> and the Relative Strength Index (RSI)<\/a>…<\/p>\n

\"Chart\"<\/div>\n

Bollinger Bands are a great indicator to measure a market’s likely trading range.<\/p>\n

Meaning if prices trade outside the upper or lower blue bands, it’s a signal that the market is overextended and is more likely to snap back, often to the midline of the Bollinger Bands (blue dotted line).<\/p>\n

The last time this happened was on December 1, and the market bounced back quite quickly.<\/p>\n

This time, though, the break below the lower band is even more extreme. And as Sir Isaac Newton would say, “every action has an equal and opposite reaction.”<\/p>\n\n\n\n
\n

Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

In the lower half of the chart is the RSI, which measures momentum. Currently, it’s flashing an extremely oversold signal (blue circle – below 30%).<\/p>\n

When you take these two clues and piece them together, it sets the stage for a classic “buy the rumor, sell the news” scenario later this afternoon.<\/p>\n

Except in this situation, the market sold off on the rumor… and I think it’s likely to buy back in on the actual news.<\/p>\n

Investors are worried about inflation, and since the start of the year, have been pricing in what they think will be a more hawkish turn by the Fed…<\/p>\n

This is what I mean by selling the rumor.<\/p>\n

Now for the second half of the equation: buying the news… When the Fed delivers their updated guidance, the market could realize that they overreacted and that stocks should indeed be priced higher.<\/p>\n

Of course, we’ll just have to wait and see how the market will react later today.<\/p>\n

But don’t be surprised if we get a fierce rally… even if on the surface it would make more sense for the market to sell off based on the actual news.<\/p>\n

Happy trading,<\/p>\n

Imre Gams
Analyst, Market Minute<\/em><\/p>\n

<\/p>\n

Reader Mailbag<\/h2>\n

Do you trade based on technical analysis, or do you manly follow the rumors and news?<\/p>\n

Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com<\/a>.<\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

The market is clearly rattled…<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[76],"newsletter-type":[],"ticker":[],"class_list":["post-19346","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-imre-gams"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/19346","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/49"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=19346"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/19346\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=19346"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=19346"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=19346"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=19346"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=19346"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=19346"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=19346"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}