The Market’s Sold the Rumor... Is It Time to Buy the News?

The market is clearly rattled. [Jeff Clark's Market Minute]( The Market’s Sold the Rumor… Is It Time to Buy the News? By Imre Gams, analyst, Market Minute Last Wednesday, I pointed out a [bearish price pattern in the S&P 500](. I warned that if the index were to break below the [support]( line of that price pattern, we’d likely be looking at a selloff back to around 4306, the lows from October 2021. 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. But, the sale of risk-on assets hasn’t been limited to the S&P 500… Recommended Link [Expert: "America’s Next Crisis Begins as soon as February 28th"]( [image]( Most people think inflation is today’s biggest financial risk. But, sadly, that doesn’t even begin to explain what is about to happen. According to tech expert Jeff Brown, the biggest headlines of 2022 will have nothing to do with inflation… and everything to do with a huge change to our money very few Americans see coming. [Go here to see what’s about to happen before it’s front-page news in every newspaper in America.]( -- 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. The market is rattled. That much is clear. And now, all eyes are on the Fed as it prepares to release an updated statement today at 2 p.m. ET. It seems like the market is waiting on the Fed to provide some clear direction in the face of the persisting inflationary challenges. But I don’t think it’s that straightforward. And [technical analysis]( can really shine in situations like this. For example, in [last Wednesday’s essay]( 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. 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. Here’s an updated daily chart of the S&P 500. This time, I’ve included two technical indicators, [Bollinger Bands]( and the [Relative Strength Index (RSI)]( [chart] [(Click here to expand image)]( Bollinger Bands are a great indicator to measure a market’s likely trading range. 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). The last time this happened was on December 1, and the market bounced back quite quickly. 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.” Free Trading Resources 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 – at zero cost to you. Just [click here]( to check it out. 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%). 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. 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. 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… This is what I mean by selling the rumor. [SCREAMING Buy Alert]( 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. Of course, we’ll just have to wait and see how the market will react later today. 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. Happy trading, Imre Gams Analyst, Market Minute Reader Mailbag Do you trade based on technical analysis, or do you manly follow the rumors and news? Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com. In Case You Missed It… [#1 crypto for 2022 named here]( If you only buy one crypto, this is the one you want. It is the #1 must-own crypto for 2022. In 2021, this small crypto soared 4X faster than Bitcoin. And over the next decade, it could be worth more than Apple, Amazon, Google, and even Facebook. 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