Third Quarter Heats Up Quickly

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Alex Partida

Oct 03rd 2022  .  3 min read

Third quarter starts off hot

The market had its first economic data release of the week minutes after the cash session opened. The reports helped bolster short-term bullish sentiment to start the session. 

In short, the Manufacturing Purchasing Managers Index (PMI) reported above 50, the baseline for growth or reduction compared to the previous month’s report.

These numbers yielded a positive reaction in the market as this information can be seen as economic growth. This welcomed news comes as many big players on Wall Street are looking initial signs of a turnaround. 

News can affect the market in several ways depending on the current environment. With all of the selling pressure as of late, many arguing the stock market is oversold. News that would otherwise be viewed as bad to market makers may not have the strength to overcome short term bullish sentiment. This is something to remember as the week progresses and more reports start unfolding. 

The psychological level of 3,700 on the S&P 500 futures has been a line in the sand recently, and the market is nearing again after today’s relief rally. Just like last week, the market has decided to put in a solid effort to rally as bearish exhaustion occurs.

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Voodoo & Fibonacci with David Starr

Will there be continuation?

Last week the relief rally lasted only a single day, but this time may be different, and here’s why:

This week’s key differences include Apple, U.S. Dollar Index ($DXY), and the Volatility Index (VIX).

Apple has been a leader in the market throughout this year. During the short-lived rally of last week, Apple was still relatively weak compared to the market. This time, Apple has kept up with the market, displaying buying in the big tech giant.

The next big difference can be found in the $DXY. The index is typically an inverse of the market; as the market goes lower, the dollar rises. Last week the $DXY was the highest it has been in the previous 20 years! This time the dollar has gone lower, taking some pressure off the market, moving back below $113.

Lastly, $VIX topped out around the $35 level before the short-term bottom in the market. This has occurred numerous times this year. Just like the $DXY, the $VIX is an inverse of the market. After the sell-off continued last week, the Volatility Index made lower highs from a structural standpoint.

These are all things that are important to note as the week progresses. Those three key elements mixed with the psychological line in the sand of 3,700 can be combined to create a game plan.

Watch both sides with no bias

For bullish sentiment to keep intact, the market will need to get above and hold 3,700 while maintaining the structure that could make this time different. If everything stays in place, the next significant level for the S&P is 3,800.

On the bearish side of the coin, if any of those three indicators start to shift the other way around, paired with trading below 3,700, the market can continue on its way lower. 

This market has been notorious for showing one thing and doing another, but these are some signs that our traders here at Simpler Trading use to stay on their toes.

The stock market closes positive

The Nasdaq and the S&P 500 were positive to close the session. The S&P 500 futures closed up 2.61%, gaining 93 points, while the Nasdaq futures closed up 2.49%, a gain of 274 points. The Dow followed, closing up 2.58%, adding 739 points.

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