The market is abuzz with the recent ‘Seasonal MACD Buy Signal’ issued by The Stocks Trader’s Almanac, signaling the start of the best six months for trading. This comes as the major averages are at or near all-time highs. The DJIA reached a new peak yesterday at 43,139, while the S&P 500 hit its ATH last Friday. The NASDAQ Composite, though 169 points away from its all-time high of 18,671, is also showing strong performance. Even the Russell 2000 (small cap index) is close to its ATH reached in October 2021.
Despite the positive sentiment, the market is showing signs of overbought territory. The S&P 500 is currently trading 11.1% above its 200-day moving average, a significant overextension. This suggests a potential for a correction, although the seasonal trends are favorable for a year-end rally. Michael Ballanger, a seasoned market analyst, believes the overbought conditions warrant caution, and he is looking to add a few calls by the end of the week in anticipation of a positive close to the year.
Turning our attention to copper, Ballanger highlights the importance of the 100-day moving average (DMA) at $4.36/lb. Copper is currently trading below this level at $4.35, with an overnight low of $4.3317. A close below the 100-DMA could lead to a test of the convergence zone between the 50-DMA and the 200-DMA. This potential dip could bring Freeport-McMoRan Inc. (FCX) back below the gap created after the Chinese stimulus package announcement.
Ballanger, who previously sold FCX calls and half of his shares in the $51.50 range, emphasizes the importance of adapting to changing market conditions. He notes that the recent overbought conditions in copper in late September signaled a need to adjust his strategy. He is hopeful that the market conditions are about to shift again for the better.
The current market dynamics are a complex interplay of seasonal trends, technical indicators, and external factors. While the ‘Seasonal MACD Buy Signal’ suggests positive momentum, the market’s overbought condition and the potential for a correction warrant close observation. It is crucial for investors to remain vigilant and adapt their strategies as market conditions evolve.