The Long-Term Trader

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has just been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

 

AAII survey (3/25/2015)

38.4% Bullish. 24.4% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (3/24/2015)

56.6% Bullish.  14.1% Bearish

Bearish: If sentiment is over 60% bullish. ( Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 15.07 (on 3/27/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 45.12 (on 3/27/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is slightly below its 50-day moving average and slightly above its 100-day moving average. 

Bearish (Short-term Downtrend): crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line but below its red 9-day signal line and pointing down. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 1.95% (on 3/27/2015)

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). 

 

Analysis and Opinion will be posted Sunday night after 9:00 p.m. ET. 

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has just been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

 

AAII survey (3/18/2015)

27.2% Bullish. 31.5% Bearish. Neutral: 41.4%. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (3/17/2015)

52.0% Bullish.  14.3% Bearish

Bearish: If sentiment is over 60% bullish. ( Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 13.02 (on 3/20/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 57.44 (on 3/20/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is above its 50-day moving average and is pointing up. It’s also above its 100-day and 200-day moving average. 

Bearish (Short-term Downtrend): crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line but is even with its red 9-day signal line and pointing up. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 1.93% (on 3/20/2015)

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). Comment: Bonds rallied big time last week.

 

Analysis: Not surprisingly, we’re getting mixed signals. The increased volatility has spooked some retail investors, who are more neutral than anything else. Even though the bulls won the week, even some well-known pros are taking a more cautious approach. Although the market was rocky, it had some good days (primarily on the day that Janet spoke). It ended the week with an uptrend, but there are so many conflicting forces looming no one can say with certainty what will happen this week. Bottom line: It’s an unpredictable, dangerous market with extreme amounts of complacency (i.e. VIX at all-time lows again).

Opinion: As expected, Janet removed the word, “patient,” but was so dovish in her press conference that the market got another buy signal. With millions of dollars trading hands, some people made a ton of money buying on the dip. As I wrote last week, based on previous Fed meetings, the market rallies because the Fed almost never disappoints. (The last time the market was surprised was when Bernanke hinted at tapering QE in May 2013; the market plunged. Bernanke backtracked for a week until he lit the market on fire again.)

While the U.S. and many world markets are making all-time highs, there are many danger signs. In fact, if you are reading this, you should be alarmed. This is the time to take money off the table. If the Dow climbs to 19,000, at worst you missed out on some upside. If I’m right, the money you moved to cash will be like an insurance policy.

Based on my analysis and opinion of the market, it’s rare that the market moves up this fast and this high based on nothingness. 1999 comes to mind, and 2007. This week is important because we’re going to see if the market can keep climbing without the Fed’s help. I am looking for earnings reports, and more importantly, the housing numbers. If this market is the real deal, then it better be going higher based on reality, and not on what the Fed does or does not do.

We’re not at the scary zone yet but we’re getting closer. My theory is that the market is topping out (and that can take time). When you add in the extreme complacency, world turmoil, a bubbly bond market, plunging commodities, you have got to be careful.

Bottom line: If you are all in the market and still buying, you are in danger of being greedy. Unless the Fed has changed reality (and many would argue they have), then this is forming a bubble of huge proportions. No one can say when it will pop, because it can go on for weeks or months, but the prudent choice is moving to the sidelines.

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has just been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

 

AAII survey (3/11/2015)

31.6% Bullish. 25.4% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (3/10/2015)

53.6% Bullish.  14.1% Bearish

Bearish: If sentiment is over 60% bullish. ( Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 16.0 (on 3/13/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 43.51 (on 3/13/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is slightly below its 50-day moving average and is pointing down. It’s above its 100-day and 200-day moving average. 

Bearish (Short-term Downtrend): crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line but below its red 9-day signal line and pointing down. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.11% (on 3/13/2015)

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). 

 

Analysis: The indicators aren’t telling us that much as we enter the week. Investor sentiment has retreated a bit as volatility increased. In particular, individual investors are not quite as bullish as last year, but most pros are in the bull camp. The technical indicators have also pulled back and are teetering on the edge of their moving averages. If it wasn’t for the Fed (read below), the market might have continued its descent. Because the Fed might change a word or two in their statement this week, all bets are off. Put another way, the Fed is the only game in town. 

Opinion: Investors are obsessed with whether Janet and company will remove the word, “patient,” from its FOMC statement. In other words, the world waits patiently to see if the Fed is impatient about raising interest rates. It’s pretty sad that the Fed’s actions will trump every fundamental and technical indicator. 

In the future, investors will look back and wonder how our markets got so detached from reality. For now, however, we have the market that we have, and there is nothing we can do about it except observe and react. In my opinion, the Fed will delay raising interest rates as long as possible.

Janet may or not remove the word, “patient.” But it is guaranteed she will have some very soothing words for investors. Judging by past FOMC meetings, the market should rally. The only surprise will be if Yellen says something that unnerves the market. This has rarely happened in the past, so the odds are good the bulls will win the week. If they don’t, that would be a very significant development.

Longer term, I do believe this market is topping out and that it will take a while for it to play out. Those who believe a correction is getting ever closer (such as me) must be patient. To survive these unusual times, one must not lose his or her head. This year could be a wild one so be focused and as unemotional as possible.

Since the only thing that matters is what the Fed might or might not do, here are the facts: The FOMC will release its interest rate statement and Janet Yellen will speak at a press conference on March 18th at 2:00 p.m. ET. Day traders should have some fun, but the rest of us may get whiplash. 

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has just been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

 My latest MarketWatch column (on using options to limit losses): http://goo.gl/BNuZRJ

 

AAII survey (3/4/2015)

39.8% Bullish. 23.4% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (3/3/2015)

58.7% Bullish.  14.1% Bearish

Bearish: If sentiment is over 60% bullish. ( Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 15.20 (on 3/6/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 45.66 (on 3/6/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is above its 50-, 100, and 200-day moving averages and is pointing down

Bearish (Short-term Downtrend): crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line but slightly below its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.24% (on 3/6/2015)

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). 

 

Analysis: Last week, sentiment surveys show that investors, especially many pros, believe the bull market will continue. The stronger the sentiment, the more bearish the result. (Although sentiment is high, it’s still not as extreme as 1999.) When we started the week, the market could have gone in either direction.  However, by Friday, the market trend had ended (at least in the short term). In fact, the indexes broke below a number of key technical levels, which caught the interest of technicians. This week we will see if the uptrend has ended or if we witnessed another false reversal. The odds favor the bears this week but that could change in an instant if investors believe all is well.

Opinion: It was a fascinating week, and this week should be just as interesting. The market was at a crossroads, seesawing in both directions until Friday. That is when the indexes broke below key technical levels and headed straight down. Nevertheless, the market is above its 50-day moving average and holding on for dear life. 

We’ve seen this story before. Just when the market is about to fall into the abyss, someone from the Fed or elsewhere makes an encouraging comment and the market reverses direction. It could happen again, which is why it’s best to take a wait and see approach. A few bears (those who are left) are dipping their toe in the water with certain overvalued stocks, but in general many traders are waiting to see if this is another head fake or the real deal. We should know fairly soon if this pullback has legs.

No matter what the market does, since it’s at all-time highs, wise investors are taking this opportunity to take money off the table. In my opinion, there is nothing wrong with holding cash in a dangerous market. Although I can’t predict what the market will do in the future, I can tell you this is one of the most dangerous markets I’ve seen in years.

Many blindly bullish investors don’t recognize the warning signs and are all in. After all, the bulls have had their way for years, so it’s understandable they believe this is just another minor pullback on the way to Dow 20,000. I’m not convinced, which is why I remain cautious. I’ve experienced several corrections and they happen quickly and usually without warning. The odds are good another one is coming.

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has just been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

  

AAII survey (2/25/2015)

45.4% Bullish. 20.3% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (2/24/2015)

59.5% Bullish.  14.1% Bearish

Bearish: If sentiment is over 60% bullish. ( Note: Percent of bears is at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 13.34 (on 2/27/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 60.27 (on 2/27/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is above its 50-, 100, and 200-day moving averages and is pointing sideways. 

Bearish (Short-term Downtrend): crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line and above its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.00% (on 2/27/2015)

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). 

 

Analysis: According to the indicators, the trend is still up although there was a slight pullback on Friday. Because of the uptrend and encouraging words from the Fed (they’ll delay raising interest rates as long as possible), investors are becoming more bullish. Most pros are true believers now, which has rubbed off on the retail crowd. Many investors really believe this market will never go down, and so far, they have been right. In summary, we have a rising market with rising investor exuberance. If you look behind the curtain, however, there are cracks (i.e. negative money flow, reduced volume, extreme valuations, and poor earnings). Nevertheless, the bulls won February. Everyone wants to know if the indexes can do a repeat performance.

Opinion: Although the indexes appear to be topping out, and could be reaching bubble territory, the herd is not selling. Until there is a reason to sell, the market will continue its tap dance at the top.

As expected, the market went higher on Janet’s testimony, but there was little volatility (to my surprise). The market seems sluggish on the rallies as well as on the pullbacks. It’s almost as if the heart of the market has been ripped out. Traders and investors go through the motions but there is little volume. Nevertheless, the market slowly grinds higher.

If you are cautiously bearish, it’s frustrating to watch the market go higher, sometimes on bad news. Many long-time bears have thrown in the towel recently, and it’s understandable. Even with financial turmoil across the world, and less than spectacular earnings, the market goes higher. Even minor pullbacks are met with a wave of algo buying. It’s not surprising that many bears have given up.

As for me, patience is the only way to win. Taking too strong a position on either side could cause financial damage. Whether you are long or short, you need to cut losses or lock in gains, and be sure you are not overexposed. Although no one knows the catalyst, one day this market will have a severe correction. By being cautious at these elevated levels, you can avoid losing money unnecessarily.