The Long-Term Trader

Each weekend, I study market behavior using sentiment and technical indicators. The goal is to use clues, observation, and indicators to determine if we are in a bullish, bearish, or sideways market environment.

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

 

AAII survey (8/20/2014)

46.1% Bullish. 23.7% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (8/19/2014)

49.5% Bullish. 16.2% Bearish

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

VIX: 11.47 (on 8/22/2014)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 is above its 50-day moving average, and pointing up. The Dow is above its 50-day MA and 100-day moving average, and pointing up

Bearish (Short-term Downtrend): Index crosses below 50-, 100-, 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 even with 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 9-day signal line. MACD line crosses above zero line.

 

RSI (S&P 500): RSI is at 62.59 (on 8/22/2014)

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.

 

Bonds: U.S. 10-year yield is at 2.40% (on 8/22/2014)

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 on August 24 after 9:00 p.m. ET. 

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I study market behavior using sentiment and technical indicators. The goal is to use clues, observation, and indicators to determine if we are in a bullish, bearish, or sideways market environment.

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

 

AAII survey (8/13/2014)

39.8% Bullish. 30.9% Bearish. 27% Neutral.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (8/12/2014)

46.4% Bullish. 16.2% Bearish

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

VIX: 13.15 (on 8/15/2014)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 is even with its 50-day moving average, and pointing up. The Dow is below its 50-day MA and slightly above its 100-day moving average, and pointing up

Bearish (Short-term Downtrend): Index crosses below 50-, 100-, 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 below its zero line, and 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 9-day signal line. MACD line crosses above zero line.

 

RSI (S&P 500): RSI is at 52.54 (on 8/15/2014)

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.

 

Bonds: U.S. 10-year yield is at 2.35% (on 8/15/2014)

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, the S&P continued to rally after almost falling off the cliff the week before. The rally continued through the week until Friday, when there was an intraday reversal (supposedly based on Ukraine). Actually, Friday could have been a lot worse as the market was down 135 points mid-day when the computerized buy-on-the-dip program minimized the damage. Sentiment indicators are a bit frothy, especially the VIX, although less extreme than a few weeks ago. MACD is still giving a negative signal, but other technical indicators are mixed. Bottom line: It’s too early to say if the uptrend is broken, or simply consolidating before moving higher.

Opinion: The world remains dangerous, and so far the market has shrugged off most of the bad news. Nevertheless, the market rallies have seemed somewhat sluggish and indecisive. The buy-on-the-dip algos continue to reduce the damage, preventing the market from falling off the cliff. One of these days, sellers will overwhelm buyers, similar to what happened a few weeks ago.

If you are an astute market observer, you want to see if the market can regain its lost 400-points. In the short-term, the S&P needs to rise above 1,960. If successful, the market could try for the big one, 2,000. This week is important, as how the market reacts will tell us whether the bull market continues, or if there is technical damage. It is impossible to predict what will happen right now.

In addition to the buy-on-the-dip programs, Janet is speaking this week from Jackson Hole. The bulls are hopeful that Janet will say something bullish. Perhaps she’ll say that inflation is under control and that the Fed will do everything in its power, including initiating QE4, to keep this market from going down. It’s not so important what Janet says, but the reaction to what she says. (For your information, futures are up Sunday night. Hope is in the air, but let’s see if there is an intraday reversal.)

I usually have a fairly good idea of which direction the market may go during the week. I can honestly say I have no idea this week. My instincts tells me the market is near a pivot or inflection point, and that the bull market is coming to a very slow end. But I could be early as this may take some time to play out.

If the market sells off hard during the week, that would be a clue the pivot point is here, and a correction is probable. If the market rallies hard during the week, then the bull market continues for a while longer. And if the market goes nowhere, then sit tight and wait another week.

Actually, sitting tight is the correct strategy this week. This is not the time to make any big plays in either direction, at least until you see how the market responds to Janet, and breaking geopolitical news.

Bottom line: Sit tight and watch.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I study market behavior using sentiment and technical indicators. The goal is to use clues, observation, and indicators to determine if we are in a bullish, bearish, or sideways market environment.

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

 

AAII survey (8/6/2014)

30.9% Bullish. 30.9% Bearish. 38.2% Neutral.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (8/5/2014)

50.5% Bullish. 17.1% Bearish

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

VIX: 15.77 (on 8/8/2014)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 is below its 50-day moving average, and pointing up. The Dow is below its 50-day and 100-day moving averages and pointing up

Bearish (Short-term Downtrend): Index crosses below 50-, 100-, 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 below its zero line, and 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 9-day signal line. MACD line crosses above zero line.

 

RSI (S&P 500): RSI is at 43.04 (on 8/8/2014)

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.

 

Bonds: U.S. 10-year yield is at 2.42% (on 8/8/2014)

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 S&P 500 was ready to fall below the line-in-the-sand technical level of 1900 when the market was saved by Friday’s monster rally, but on low volume. Nevertheless, the two-week downtrend was temporarily interrupted, and on Monday we’ll see if there will be another rally, or a continued selloff. The downtrend is still intact (according to the moving averages), but that could change in a heartbeat, especially if Janet unexpectedly appears. MACD is still signaling trouble, but like moving averages, it’s a lagging indicator. On the sentiment side, retail investors are feeling less bullish now, but financial writers are still all in (with a few exceptions). Bottom line: Sentiment indicators have fallen a bit after the two-week drubbing, but few investors are excessively bearish. Technical and fundamental indicators are giving confusing signals, so watch the market itself for clues.

Opinion: It was another crazy, volatile week. Because of geopolitical concerns and economic problems we don’t know about, the market continued selling off. And then Friday arrived, and Bam! Out of the blue, the market staged a monster rally on low volume. Commentators spent hours of time trying to determine why the market rallied, and I don’t even remember their reason. (I believe it was because Russia appeared to pull back from Ukraine.)

Friday’s rally proved once again why shorting stocks has been so difficult for the last five years. In fact, many short sellers are sitting on the sidelines, and they won’t return until they are convinced the uptrend is broken. Until then, short-sellers are cautious, as well they should.

I can’t tell from the indicators what will happen this week, but I’m looking to see if the Friday rally continues. Even more important, I am looking for clues the rally rolls over and fails. If this rally (or future rallies) fail, it might be time to think about buying inverse ETFs or puts. Once again, shorting strategies are risky in a volatile environment, which is why playing it safe in cash is the preferred strategy for retail investors.

Nevertheless, the majority of retail investors are not in cash. According to the most recent AAII Allocation Survey, cash levels in July dropped to 15.8%, the lowest level since 1999. Once again, it seems like retail investors are buying stocks at the highs. In fact, the worst mistake investors can make now is chasing after lost opportunities in the late stages of a bull market.

On the other hand, many very smart money managers believe the worst is over and the bull market continues. Many appear on TV with exciting predictions of 2,000 on the S&P and beyond. Perhaps they are right. If we get there quickly, the bull market continues and short sellers must retreat.

As you know, I’m not willing to buy at these elevated price levels (the S&P is still only 4% from its all time high). To me, the 5% potential upside is not worth the 20% potential downside. Nevertheless, that’s a decision only you can make.

Bottom line: Once again, because of volatility, geopolitical events, and confusing technical and fundamental signals, it’s impossible to predict what will happen this week. At this writing, I still believe the probabilities are on the side of the bears, but that can change quickly.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I study market behavior using sentiment and technical indicators. The goal is to use clues, observation, and indicators to determine if we are in a bullish, bearish, or sideways market environment.

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

 

AAII survey (7/27/2014)

31.1% Bullish. 31.1% Bearish. 37.8% Neutral.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (7/29/2014)

55.6% Bullish. 16.2% Bearish

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

VIX: 17.03 (on 8/1/2014)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 is below its 50-day moving average, and pointing down. The Dow is below its 50-day and 100-day moving averages and pointing down. 

Bearish (Short-term Downtrend): Index crosses below 50-, 100-, 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 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 9-day signal line. MACD line crosses above zero line.

 

RSI (S&P 500): RSI is at 34.29 (on 8/1/2014)

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.

 

Bonds: U.S. 10-year yield is at 2.47% (on 8/1/2014)

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 was the worst week for the S&P 500 in two years. In two days, it wiped out all of its year-to-date gains. As a result, technical damage was done to the major indexes including the Dow, which is now below its 50-day and 100-day moving averages. In addition, volatility was introduced back to the market as the VIX climbed from an extremely complacent 12 to a mildly complacent 17. Because of the pullback, sentiment fell across the board, although most in the financial world are still bullish. In addition, RSI dropped dramatically, and is almost in oversold territory. Keep in mind that many consider this a “healthy” pullback that will set the stage for a retest of Dow 17,000 or S&P 2000. Fact: This week will give us important clues where this market is headed.

Opinion: As I predicted, it was a heck of a roller coaster ride. To be blunt, it was a horrible week for the bulls, and real technical damage was done as the indexes breached their 50-day moving averages, and the Dow dropped below its 100-day moving average. And yet, it is too early for the bears to claim victory. After all, we have seen this story before.

For five years, the market has always found a way to reverse direction and move higher. For example, the Fed could introduce a new program such as “Operation Twist and Shout.” That could repair the psychological damage and delight the minions. If the market sells off even more, the Fed could bring out QE4, or suspend tapering. Any of the following actions would send the market to dizzying heights, at least temporarily.

Yes, technical damage was done to the market last week, but it’s also too early to say that a correction has begun. First, keep your eye on the rallies. If the market rallies this week, and it will try, watch if the rally is successful. Successful means that it is able to win back much of the losses sustained last week, and eventually rise above its moving averages. A key price point is 1960 on the S&P 500. If the S&P rises above that price level, the bulls will still be in control.

On the other hand, if the market attempts to rally, and fails, look out below. Even more revealing, if Janet tries to woo the market higher and it doesn’t work, and sells off, that is also significant. The worst-case scenario for the bulls is if the market rallies and fails, or if it plunges right at the beginning of the week. That would catch most investors off guard, and give notice that a correction is underway. This could play out over several weeks or months.

Many pundits are saying that a 5 to 10 percent correction in the Dow is “normal” and “healthy” and will be a “buying opportunity.” Perhaps. If they’re right, an additional 1,600-point plunge (10%) can’t be a pleasant experience for investors. In fact, most investors are still complacent, and cannot fathom the possibility that the bull market is in any danger. If this is a true correction, years of gains could be wiped out in a short time period.

If you’ve been reading this blog, you are already prepared. If you are a beginner investor, you may be sitting primarily in cash, and that’s prudent. As many investors learned last week, making 0% is better than losing money. If you are an experienced investor, you are looking for opportunities to short the rallies using inverse ETFs or options (I don’t recommend shorting individual stocks for retail investors).

Bottom line: This is the time to bring your A-game to the market. If there was ever a time to study and observe the market for clues, it’s now. Although the market is vulnerable, the Fed, with help from Wall Street, might say or do something dramatic to try and keep the party going. All we can do is wait and watch, and be ready for any scenario.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I study market behavior using sentiment and technical indicators. The goal is to use clues, observation, and indicators to determine if we are in a bullish, bearish, or sideways market environment.

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

My latest MarketWatch column just posted (July 28): http://goo.gl/IIFBtP

 

AAII survey (7/20/2014)

29.6% Bullish. 29.9% Bearish. 40.4% Neutral.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (7/22/2014)

56.5% Bullish. 17.2% Bearish

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

VIX: 12.69 (on 7/25/2014)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 is above its 50-, 100-, and 200-day moving averages, and pointing down.

Bearish (Short-term Downtrend): Index crosses below 50-, 100-, 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 zero line, and 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 9-day signal line. MACD line crosses above zero line.

 

RSI (S&P 500): RSI is at 55 (on 7/25/2014)

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.

 

Bonds: U.S. 10-year yield is at 2.47% (on 7/25/2014)

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

 

New Highs: Only 93 NYSE stocks out of 3,234 made new 52-week highs as of July 25th. (There were 46 new lows.)

 

Analysis: The sentiment readings are nearly the same as last week, that is, overbought. The pros and financial writers seem more bullish than retail investors, who don’t want to get burned again. The trend is still up but cracks are starting to form if you know what to look for. Basically, the market continues to crawl higher but with less and less energy and breadth. This divergence is flashing red danger signs, especially to experienced traders. Nevertheless, anything is possible this week as GDP and employment numbers are released along with Fed comments, if any. There are many market-moving events so keep your seatbelt fastened.

Opinion: As expected, it was a rocky week and a rocky ending. On the bright side, it could have been a lot worse, but as usual, the damage was contained by the buy-on-the-dippers, who seem to be using algos to contain the damage. Just when the market appears to crack, powerful buyers enter to buy on the dip. It’s a pattern that has played out for months. I’d love to know who is behind the buying.

A number of market moving events will occur this week, including the Fed meeting on Tuesday and Wednesday. Wednesday is also the release of the GDP, which should move the market. And on Friday is the July employment report. In addition, during the week there will be reports on manufacturing, auto sales, home prices, and consumer prices.

Because of all the information coming out this week, it’s impossible to predict what will happen. Keep your eye on the rallies. If the news is good, and there is a rally, watch to see if it’s strong, and if it carries over into the next day. Most important, if the market cannot rally strongly on good news, that is a clue the market is tired and heavy.

As I’ve written in the past, I believe this bull market is coming to an end, but I can’t predict when. All I can do is wait and watch for clues. It is possible for the S&P to melt up another 5 or 7 percent, perhaps to 2000 or even 2100. It will take a lot of energy for it to make it that far, but it’s possible. It could happen with help from the Fed and fantastic government numbers. And yet, it also wouldn’t take much to send this market south, and quickly.

What would surprise me the most? If the market was flat. If my instincts are right, this will be a week for traders. This week, be a stock detective, and look for clues. I’ll be looking for intraday reversals, two-day selloffs, or perhaps one last parabolic meltup if the housing, auto, or GDP numbers are spectacular. I’m also looking to see how the market reacts to the data, and what the Fed will say so the whole thing doesn’t unravel.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.