The stock market is setting up for a short-term bounce.
But make no mistake… the long-term and intermediate-term trends for the stock market remain bearish.
The S&P 500 closed February below its 20-month exponential moving average (EMA) line. That’s bearish.
And the NYSE McClellan Summation Index (NYSI) generated an intermediate-term sell signal two weeks ago. That’s bearish too.
But one of our most reliable short-term trading indicators just flashed a buy signal. So, we could soon see a few days of upside action in stocks.
Last week, the Volatility Index (VIX) generated a broad stock market buy signal.
Take a look…
The VIX generates a buy signal when it first closes above its upper Bollinger Band, and then closes back inside the bands (blue arrows). That happened last week, and it gave us our first buy signal of 2023.
Last year, the VIX gave us three buy signals. Here’s how those signals (blue arrows) played out on the S&P 500…
In all three cases last year, the S&P 500 experienced a bit more short-term weakness before putting on a sharp, quick bounce.
Within one week, the index gained more than 100 points following the VIX buy signal last April. It popped 150 points higher in about a week in June.
And the buy signal in late September was good for a 150-point pop in the index – which again, lasted just over one week.
Last Thursday, the VIX generated a buy signal. Since then, the stock market has experienced a bit more short-term weakness.
We’re in the time frame now where, if the buy signal is going to play out, we should see a quick, short-term bounce.
If the bounce follows the same script as all three of the VIX buy signals last year, then the S&P 500 could be trading near 4100 or so by this time next week.
So, while technical conditions remain bearish for the intermediate- and long-term time frames, the stock market is set up for a decent short-term bounce.
Best regards and good trading,
Jeff Clark
Source: Jeff Clark Trader