The Long-Term Trader

Here are the latest technical and sentiment indicators:

Technical Indicators (daily chart)

S&P 500 one-month trend = Bullish

S&P 500 is above its 50-day moving average = Bullish

MACD (S&P 500; 19,39,9) is above its zero line = Bullish

MACD (S&P 500; 19,39,9) is above its signal line = Bullish

S&P 500 support @ 2748

 

Sentiment Indicators (+RSI)

II survey: (Jan. 17): 66.7% Bulls; 12.7% Bears = Bearish (*Historic sentiment levels)

AAII survey: (Jan. 18): 54.1% Bulls; 21.4% Bears = Bearish

VIX: @ 11.27= Bearish

RSI: (S&P 500) @ 80.60 = Overbought (Extremely!)

Comment: We’re still in an uptrend as the technical indicators reflect. The sentiment indicators are also telling us the uptrend can’t be sustained for long, as they have reached nosebleed levels of optimism. Nevertheless, the wild card this week is the government shutdown. If the market ignores the shutdown, the market should move even higher. Obviously, one day the bull market will crack but it’s impossible to guess when. Keep looking for clues, not opinion or predictions. I’m watching how the market reacts to the shutdown, and whether investors even care. Based on history, when the bull market ends, it will end for reasons that are not immediately apparent to the public or even newsworthy (at first). 

Here are the latest technical and sentiment indicators:

Technical Indicators (daily chart)

S&P 500 one-month trend = Bullish

S&P 500 is above its 50-day moving average = Bullish

MACD (S&P 500; 19,39,9) is above its zero line = Bullish

MACD (S&P 500; 19,39,9) is above its signal line = Bullish

S&P 500 support @ 2700

 

Sentiment Indicators (+RSI)

II survey: (Jan. 10): 64.4% Bulls; 13.5% Bears = Bearish (*Note: The last time these sentiment levels were reached was April 1986, 18 months before the 1987 crash.)

AAII survey: (Jan. 11): 48.67% Bulls; 25.07% Bears = Bearish

VIX: @ 10.16= Bearish

RSI: (S&P 500) @ 83.42 = Overbought (Extremely!)

Comment: The market keeps going higher, breaking records along the way. The most overbought market since 1929, the highest margin in history, and the highest sentiment readings in decades. In addition, millions of dollars are moving from mutual funds to leveraged ETFs. Many investors truly believe the market is not going to go down (I heard that in 1999 and 2007).

Obviously, one day reality will return to the market as we continue through the exuberance stage. It’s not a question of if but when the market cracks. When that day comes, many amateurs are going to learn a lesson on leveraged funds: easy to buy, hard to sell when everyone tries to sell at once.

For now, however, the bulls rule and there is no evidence of a reversal. Until the market cracks, shorting the indexes is too risky (there are individual stocks that can be shorted for decent profits). The market is reaching levels that are impossible to sustain for long. The only question is if there will be a mild correction that recovers quickly, or a severe correction, or worse. As I wrote last week, it’s not wrong to ride this wave higher but use hedges or have a strategy for getting out when all hell breaks loose (and it will one day).

Here are the latest technical and sentiment indicators:

Technical Indicators (daily chart)

S&P 500 one-month trend = Bullish

S&P 500 is above its 50-day moving average = Bullish

MACD (S&P 500; 19,39,9) is above its zero line = Bullish

MACD (S&P 500; 19,39,9) is above its signal line = Bullish

S&P 500 support @ 2700

 

Sentiment Indicators (+RSI)

II survey: (Jan. 2): 61.9% Bulls; 15.2% Bears = Bearish

AAII survey: (Jan. 3): 59.8% Bulls; 15.6% Bears = Bearish

VIX: @ 9.22= Bearish

RSI: (S&P 500) @ 78.31 = Overbought 

Comment: According to the sentiment indicators, we are in the euphoric stage of the bull market, and if history is any guide, it will eventually end in tears. In addition, the eye-popping indicators include the RSI, which is reaching extremely overbought levels (70 is overbought), and the AAII sentiment survey, the highest bullish number since 2010. Retail investors have been relatively neutral through 2017, and now they’re “all in,” which is a huge danger sign. Add in the extreme levels of margin and you have the makings of a severe correction.

And yet, it’s risky to bet against the euphoric stage of this bull market as it can trample over any shorts. Just like bitcoin taught us, extreme levels can get even more extreme. Nevertheless, be prepared to buy puts at the “right” time. If you’re too early, you will lose money (see the great movie, “The Big Short,” for a refresher course). I believe that 2018 is going to be a lot more challenging than 2017, so keep your pencils sharpened. If I’m right, volatility will not only increase, it will skyrocket this year.

If you’re long and feeling euphoric (as one reader wrote me), enjoy the party but stay close to the exit. It’s not wrong to reduce your long positions. If you’re skilled, you can ride the end of the bull market a bit longer. The euphoric stage is the most delicious and satisfying, and the most deceiving. It’s where every investor is a genius simply for being in the right place at the right time. Meanwhile, I can hear those police sirens coming closer while the party rages on into the night. Few believe the party will end this year (maybe next year, they always say).

Get out the popcorn, this is going to be a fascinating year.

 

Here are the latest technical and sentiment indicators:

Technical Indicators (daily chart)

S&P 500 one-month trend = Bullish

S&P 500 six-month trend = Bullish

MACD (S&P 500; 19,39,9) is above its zero line = Bullish

MACD (S&P 500; 19,39,9) is slightly below its signal line = Bearish

S&P 500 support @ 2670

 

Sentiment Indicators (+RSI)

II survey: (Dec. 19): 64.1% Bulls; 15.1% Bears = Bearish

AAII survey: (Dec. 27): 52.7% Bulls; 20.6% Bears = Bearish

VIX: @ 11.04= Bearish

RSI: (S&P 500) @ 60.95 = Neutral

Comment: It’s the first time in a very long time that the AAII sentiment survey surpassed 50% bullish. Like other sentiment surveys, it is telling us that the retail investor finally believes this bull market is for real. Typically, that tells us the end of the bull market is near.

If you add in the huge amount of margin debt (highest in history), and a market that hasn’t retreated by more than a few percent all year, you have the makings of a monster correction. The timing of any correction is difficult, if not impossible, but the clues are everywhere.

This is the time to be more on guard than at anytime in the last year. The odds are good this will be a volatile year, which means it will be time to get to work if you are a short-term trader. This manufactured low-volatility environment can only last so long before reality returns.  Nevertheless, I follow the trend, and we are still in an uptrend (1-month and 6-month). Because of that, it’s still too early to short, but it’s too dangerous to be aggressively long. Advice? Be patient…very patient. Let the market reveal its hand.

As expected, after bitcoin made an all-time high a few weeks ago (20k per coin), it plunged to 11k before recovering to 16k, then falling back to 13k. Those in the know tell me they are “all in” if bitcoin falls to $11,200, but I stand by my original opinion: Bitcoin should be left to the professional traders because its true value is unknown. 

Here are the latest technical and sentiment indicators:

Technical Indicators (daily chart)

S&P 500 one-month trend = Bullish

S&P 500 six-month trend = Bullish 

MACD (S&P 500; 19,39,9) is above its zero line = Bullish

MACD (S&P 500; 19,39,9) is above its signal line = Bullish

S&P 500 support @ 2670

 

Sentiment Indicators (+RSI)

II survey: (Dec. 12): 61.9% Bulls; 15.2% Bears = Bearish

AAII survey: (Dec. 13): 45% Bulls; 28.1% Bears = Neutral

VIX: @ 9.42= Bearish

RSI: (S&P 500) @ 72.86 = Bearish

Comment: Even with a bullish bias last week, the S&P 500 ended flat (with a few intraday rallies and selloffs along the way). The bulls are still in control but we’re in the late stages of a bull market. No one knows when but a correction is guaranteed, most likely in 2018. Based on past markets, the odds are we’re going flat to higher to finish off the year. However, as I’ve repeatedly warned, 2018 is likely to be challenging. I am guessing volatility will return in 2018, but I’ll wait first before plunging.

Meanwhile, I’m convinced that bitcoin is in a bubble based on the usual signs:

  1. At Starbucks, I’ve been watching various bitcoin brokers signing up clueless customers. 
  2. Friends of mine who know nothing about investments are buying bitcoin.
  3. Look at the chart!
  4. All anyone wants to talk about is bitcoin and other cryptocurrencies. Those who got in early could do very well (assuming they sell at the right time). Latecomers will get hurt.
  5. Most who own bitcoin have no intention of selling. After all, some pros are predicting bitcoin at $40,000, and even $100,000. (That’s why few are selling.)

Can bitcoin, etc. go higher? Oh, definitely. This is the exuberance stage and it could skyrocket to levels that are inconceivable. But a major plunge is due, perhaps sooner rather than later, but no one can predict when. After bitcoin plunges, then we’ll get a better idea of its true value. At this time, no one knows what cryptocurrencies are worth, and that is why this investment is risky.