The Weekly Trader

Here are the latest indicators:

S&P 500 one-month trend = Bullish

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

RSI: (S&P 500) @59.20 = Neutral

Intraday Volatility: Low

Daily results of multiple indicators (from Yardeni Research):

Comment: Last week, the market shrugged off a temporary downtrend and rocketed higher, ending in a huge Friday rally. Volatility was suppressed and the bulls took back control of the market. As we enter this week, no one can predict what is going to happen next. It “appears” as if this rally has some legs, but we’ll know by Monday afternoon. If the market does have room to run, if trading, don’t fight the uptrend and join the bulls.

As traders, however, we must be prepared to sell when rallies run out of steam, as they always do. Although the bulls are in control for now, the bears must patiently wait for another opportunity to pounce, probably when everyone thinks the worst is over.

Bottom line: Join the bull party if it continues this week but be prepared to sell quickly when the market slows down or reverses.

Here are the latest indicators:

S&P 500 one-month trend = Bearish

S&P 500 is well below its 50-day moving average and slightly above its 100-day MA = Bearish

RSI: (S&P 500) @45.62 = Neutral

Intraday Volatility: Increasing

Daily results of multiple indicators (from Yardeni Research):

Comment: As expected, intraday volatility increased last week, providing opportunities for traders and anxiety for investors. Volatility should also increase this week as well due to trade wars talk, among other things (i.e. interest rates). With the S&P 500 well below its 50-day moving average and below the 2700 line in the sand, the bears are in control at the moment. However, the bulls will try and retake the 50-day moving average so be prepared for sudden rallies.

Predicting next week is a fool’s errand as the market will once again go in both directions. It’s important to recognize that the market is changing before our eyes. I am guessing that the bull market is slowly coming to an end but we need more evidence first. If my theory is correct, it will not be a pleasant experience for most people but there will be money-making opportunities if you are sharp, and paying attention. Try to keep an open mind, i.e. that the market can go in both directions. It might take a while for a long-term trend to take hold as the bulls and bears fight it out each day.

Bottom line: Trade small if are a new trader, and if you are an investor, have hedges in place in case of worst case scenarios. Let’s see if the bulls can ride the market back above SPX 2700. 

Here are the latest indicators:

S&P 500 one-month trend = Neutral

S&P 500 is a few points above its 50-day moving average = Neutral

RSI: (S&P 500) @53.70 = Neutral

Intraday Volatility: Neutral (but with potential to increase this week)

Daily results of multiple indicators (from Yardeni Research):

Comment: As I wrote last week, the line in the sand was 2700 on the S&P 500. After a rough start, the S&P dropped well below 2700 early last week, even touching its 200-day moving average for a few hours. By the end of the week, however, the bulls (with help from the algos) saved the market and ran it back to its 50-day moving average. In fact, the market ended nearly where it began last week.

So here we are again. Bullish investors are feeling even more invincible while the bears wonder if they will ever win the long game. This week should be volatile because of the Humphrey-Hawkins hearings. Chairman Powell will testify on Tuesday, February 27 at 10:00 a.m. ET, and again on Thursday, March 1 at 10:00 a.m. Based on what Powell says, it is highly likely the market will be volatile depending on whether Wall Street likes or doesn’t like Powell’s answers.

Bottom line: The bulls once again pulled a rabbit out of the hat and saved the week. Let’s stay tuned to what Powell says, and more important, how the market reacts. Be cautious trading during the hearings as volatility is likely to explode at times. The market could go in either direction (and most likely, in both directions).

Here are the latest indicators:

S&P 500 one-month trend = Neutral to Bearish

S&P 500 is near its 50-day moving average = Neutral

RSI: (S&P 500) @51.08 = Neutral

Intraday Volatility: Neutral (but with potential to increase)

Daily results of multiple indicators (from Yardeni Research):

Comment: After a five-day rally, the market is due to take a breather, or worse. We went too far and too fast on questionable buying. “Questionable” because it appears as if the algos and other entities ran the market higher, as often happens. We went far and fast but could only surpass the S&P’s 50-day moving average by no more than a few points. This week, if the market soundly rises above its 50-day moving average, the bull market continues. If, on the other hand, it fails, then the market will be in for a rough week. 

Because severe technical damage was done to the market in early February, I would not be surprised to see a pullback this week. A one-week party cannot erase the damage done, so be prepared for volatility to increase moving forward. Many investors believe the worst is over so any pullback will be a surprise. As always, keep your eye on the 10-year yield (the closer it gets to 3%, the more volatility will increase), and also on the 50-day moving average. As always, the market is always right and the 50-day moving average is the line in the sand.

Here are the latest indicators:

S&P 500 one-month trend = Bearish

S&P 500 is below its 50-day and 100-day moving averages = Bearish

RSI: (S&P 500) @34.83 = Oversold

Intraday Volatility: Extremely High (Ideal for traders). 

Daily results of multiple indicators (from Yardeni Research):

Comment: What a difference a week makes! The financial media are reporting that last week was the most volatile in market history. After nine years, some of the riskiest strategies such as selling naked puts, shorting volatility, and buying on the dip stopped working. As you know, shorting volatility worked for years, until it didn’t. I’m also sure more than a few people blew up their accounts selling naked puts. The surprising part is how long these strategies worked without any pullback or correction.

I could write a chapter on what happened last week, and what might happen in the future. First, it’s too early to say what the market will do this week. In the past, after a pullback (we haven’t had a correction for years), the market bounced back. I’ve been talking to investors who are expecting the market to “bounce back.” They could be right. On the other hand, and this is where it will get interesting, the correction could get worse. As traders, we are open to any possibility. That means we go short (buying puts is less risky if you know how to trade options) if the market continues down. Or we will go long if the market bounces back strongly above the 100-day MA and 50-day MA.

The best advice is to follow the oldest advice: Buy low and sell high. The market was at all-time highs and yet, investors were going on margin, buying leveraged ETFs, and buying at the top. I talked to these investors a few weeks ago and they never imagined that the market could go down. And now, they are hopeful the bull market will continue. Like I said, they could be right, but they also could be wrong. I just hope these investors are properly diversified in case a worst case scenario develops.

If you read my blog from January 29, I had received a call from a market technician who told me that the market was at ‘statistically stupid” levels. As it turned out, he was right. Eventually, statistics win out. The idea that we were 3 standard deviations above the 200-day moving average was ridiculous. Reality finally returned to the markets and many investors are feeling the pain.

As I have written for weeks, this is the time to learn about bear markets, corrections, buying put (and call options) and managing volatile markets. There is a good chance that volatility will be here to stay for a while. But then again, I remember thinking that in 2016, and eventually volatility was artificially suppressed and the markets continued higher. This time, however, interest rates are rising, causing havoc in the bond market. It will be interesting to see how the new guy at the Fed handles it. Pay close attention to the bond market and interest rates.

One of my neighbors went to her broker two weeks ago and sold her ETFs and stocks (she kept her mutual funds) right before the 2,000 point drop. The broker tried to discourage her from selling, and told her that “You shouldn’t panic.” She told him what I had once told her: “It’s not panic if you’re the first out the door!”

On one hand, you don’t want to sell everything in a panic because you might miss out on a tremendous rally. On the other hand, you don’t want to be leveraged up to the hilt when the market takes another hit. Everyone has to find their own personal comfort zone. During times of high volatility, like now, many trading strategies do well while buy-and-hold strategies suffer. It’s a lesson that is learned every few years.

Bottom line: This week is very important. We are at a key pivot point that will determine market direction for months or years. In the past, the market recovered from short-term damage. If the market continues to fall, there are more serious problems than we know. If the market continues to fall, it means the bubble is deflating, and that will not be good news for investors who are being told to “not panic” and “the market always comes back.” My other advice: Listen to what the market is telling you. Only the market is right (and everything else is just noise).

Baseball analogy: The bears got a few home runs last week but the bulls are not giving up. Only time will tell if the bears can run up the score or if the bulls can tie the game with a little help from their friends at the Fed.