S&P 500 Essentially Treading Water

Earning season hasn't really helped the S&P 500. In effect, the market has moved sideways since the end of March. Of note, the Bollinger bands have narrowed as volatility has decreased (green ellipse). Markets are inherently volatile and cannot stay at "rest" for too long. As such a narrowing of the Bollinger bands is usually a precursor to a sharp movement as volatility jumps.

The question is which way will the jump be, up or down?

Whilst impossible to call the direction conclusively, the following chart may provide a clue to likely direction if volatility increases.

The daily chart's EMAs have lined up in bearish formation. The green 5-day EMA is below the orange 13-day EMA, and the orange 13-day EMA is below the black 34-day EMA. The red 200-SMA is acting as support. If this support fails to hold and the slopes of the EMAS turn negative, it is likely to be a sign of index weakness.

This may indeed be a possibility if the USD continues to climb. This is because a stronger dollar will impact on the US large-caps by making their exports more expensive. This may already be in play as yesterday's ISM Manufacturing PMI came in lower than forecast i.e. US manufactures may be responding to a lower demand for US exports as the USD strengthens. Moreover, exports are likely to also be affected by the 25% tariff on steel imports and a 10% tariff on aluminium instituted by President Trump in March.