Stock Market Outlook: Are Risk Off Days Warning Bulls?

The S&P 500 Index struggled on Tuesday (-0.67%), but finished well off the lows as Treasury Secretary Janet Yellen hinted that interest rates may need to be raised to fight inflation.

The Dow Jones Industrial Average managed to eke out a gain right at the closing bell (+0.06%). The NASDAQ Composite pushed aggressively lower early in the session as growth stocks were shunned in favor of Blue Chips, but it finished off the lows of the session (-1.88%).

The NASDAQ Composite has a “3 Red Arrows” signal; the other three stock market indices have a mix of green and red arrows.

The Russell 2000 fell 1.28% Tuesday and is the only major index to slip into a weakly bearish posture; it closed a hair above its falling 30 day moving average.

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Tuesday was clearly a “risk-off” type of day where money moved from stocks into bonds; the 10-year Treasury bond yield fell to 1.59%.

The U.S. Dollar continued its reversion to the mean move after producing oversold clusters last week; it closed higher by 0.45% but still has a bearish intermediate posture.

Oil acted as a reflationary trade and closed near 3-month highs(+2.02%); gold had the more traditional inverse relationship with the Dollar and closed slightly lower (-0.73%).

Bitcoin (-3.08%) has been unable to achieve new highs since the middle of April and has a bearish intermediate posture while trading below its falling 30 day moving average.

The sector story recently has been Materials (+1.09% today); steel, iron ore, forestry/lumber have all been impressive from an industry perspective. Technology was today’s worst performer (-1.79%) and is currently the only sector with a bearish intermediate posture

Our trade application example featured buying a long call vertical on L3 Harris (LHX) after a good looking bounce off of its 30 day moving average; it has also transitioned colors/rankings positively within our Stock Selector tool and has a bullish Market Forecast posture

Get market insights, stock trading ideas, and educational instruction over at the Market Scholars website.

Stock Market Outlook Video – News, Analysis, & Insights – May 5

Twitter:  @BrandonVanZee and @MarketScholars

The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.