The S&P 500 was sharply oversold last week according to Our Big View weekly analysis. Hence, the market bounced and cleared the 50-day moving average in all indices.

The macro backdrop for the financial system remains the same. However, with all the headwinds, can this bounce last?

First and foremost, nothing about the market’s underlying fundamentals has changed. According to the latest Refinitiv Lipper fund flow report, sellers retracted $17.5B from conventional exchange-traded funds last week. Leading the outflows were equity funds and money market fund. This marks the second straight week of outflows for both.

The fixed income ETF losers were SPDR Bloomberg High Yield Bond ETF (JNK) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), as they also observed the most significant weekly outflows. With that said, junk bonds have been an extraordinarily reliable lead indicator for risk on/risk/neutral/risk off.

To start the heavy stat-driven week, what do we need junk bonds to do in order to see the equity rally continue?

Junk bonds deliver higher yields on investments, as the companies in the ETF generally tend to have poor balance sheets. Therefore, if bond traders are buying junk bonds, they have confidence the market will go up. The chart shows that, while SPY is above the blue line or 50-DMA, junk bonds (JNK) are not quite there.

If some of the headwinds turn out not so disruptive (CPI lower, rail strike averted, rates remain stable, dollar does not get stronger), then we will see it in the chart of JNK. The 50-DMA will penetrate, which will embolden bulls further, possibly taking SPY closer to 420. However, should JNK roll over and break under 93.00, we will consider that a warning to the bulls.

Investors should always keep an eye on fund flow data when making investment decisions. It can provide valuable insights into other market participants’ feelings about a particular asset class or sector.

Traders can gain an advantage in the market by using MarketGauge’s proprietary technical analysis tools, such as the triple play indicator, comparable market phases, downward momentum, volume analysis and positive trend strength (TSI) When used in conjunction with the Modern Family, these will help you to make better-informed trading decisions.

To learn more about how to identify trend changes using indicators and the Modern Family, reach out via chat, phone, or email, or book a call with Rob Quinn, our Chief Strategy Consultant, by clicking here.

Mish’s Upcoming Seminars

ChartCon 2022: October 7-8th, Seattle (FULLY VIRTUAL EVENT). Join me and 16 other elite market experts for live trading rooms, fireside chats, and panel discussions. Learn more here.

The Money Show: Join me and many wonderful speakers at the Money Show in Orlando, beginning October 30th running thru November 1st; spend Halloween with us!

Get your copy of Plant Your Money Tree: A Guide to Growing Your Wealth and a special bonus here.

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.

Mish in the Media

Mish hosted the Monday, September 12 edition of StockCharts TV’s Your Daily Five, where she discusses the most influential aspects to the market, from the dollar, to bonds, to commodities.

In this appearance on Cavuto Coast to Coast, Mish, Jonathan and Neil discuss inflation — somehow, it all comes back to that.

Mish joins Maggie Lake of Real Vision Finance to talk about key levels for stocks, bonds, crypto and the dollar. Mish also shares critical information about hot sectors such as solar and EVs, emerging markets and trends, and the all-important commodity sector.

In this appearance on Nasdaq Talks, Jill Malandrino and Mish talk Fed, dollar, moving averages and stock picks.

On the Friday edition of Cheddar TV’s Opening Bell, Mish covers the EU, U.S. and what to watch for concerning Fed, econ stats and technicals.

Mish discusses how meme stocks are formed, where to find them and how to trade them on CNBC Asia.

Mish tells you why and what she is looking to buy right now on this appearance with Charles Payne on Fox Business.

Read Mish’s latest article for CMC Markets, titled “The Most Important Sector to Watch Right Now“.

ETF Summary

S&P 500 (SPY): 408.82 support, resistance 413.55.Russell 2000 (IWM): 187.29 support, resistance 190.84.Dow (DIA): Support 322.04, resistance 326.62.Nasdaq (QQQ): Support 309.61, resistance 312.61.KRE (Regional Banks): Support 64.12, resistance 65.20.SMH (Semiconductors): 213 support, resistance 220.IYT (Transportation): 236.82 support, 238.75 resistance.IBB (Biotechnology): 127.12 support, 128.52 resistance.XRT (Retail): Support 66.47, 67.75 resistance.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education