The Weekly Trader

Here are the latest technical and sentiment indicators:  

Technical Indicators (daily chart)

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

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

MACD (S&P 500; 19,39,9) is even with its signal line = Neutral

S&P 500 support @ 2400

 

Sentiment Indicators (+RSI)

II survey: (July 11): 50.0% Bulls; 18.6% Bears = Bearish

AAII survey: (July 12): 28.2% Bulls; 29.76% Bears = Neutral

VIX: @ 9.51 = Bearish

RSI: (S&P 500) @ 62.46 = Neutral

Comment: Using the Darvas “box theory,” we went from the lower end of the box to the upper end within minutes, another way of saying we went from support to resistance on the S&P 500 in one day. How did this happen? Janet Yellen said in “Fed speak” that she was going to be cautious about raising interest rates. At first, the market sold off, then it rocketed to all-time highs when Janet hinted that low interest rates will continue indefinitely.

The main strategy that has worked for the last eight years is “buy on the dip,” and that continues. It won’t continue indefinitely, but as we enter this week, there is no evidence (yet) this strategy will stop working. This week is important: Most analysts are strongly bullish, but I am waiting to see if the S&P can remain above 2450. Once again, the bulls have Janet in their corner. This week, perhaps reality will appear, but I wouldn’t bet on it. 

Bottom line: Although the market can go much higher from here, which is the expectation from most pros, caution is advised. Take a wait and see attitude before committing heavily to one side or the other. Will the S&P remain above resistance? If so, the bull market continues. If not, a pullback is likely. One certainty: No one can predict which direction the market will go this week, although many have tried.

Here are the latest technical and sentiment indicators:

 Technical Indicators (daily chart)

S&P 500 is slightly above its 50-day MA = Neutral

MACD (S&P 500; 19,39,9) is above its zero line but pointing down = Neutral

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

S&P 500 support @ 2400

S&P 500 resistance @ 2450

 

Sentiment Indicators (+RSI)

II survey: (July 4): 52.5% Bulls; 18.8% Bears = Bearish

AAII survey: (July 5): 29.6% Bulls; 29.9% Bears = Neutral

VIX: @ 11.19 = Bearish

RSI: (S&P 500) @ 50.24 = Neutral

Comment: One book I read every year (besides the Jesse Livermore books) is “How I Made $2,000,000 in the Stock Market” by Nicolas Darvas. Although written in the 1950’s, Darvas’ ideas are still valid. He created a “box theory” that works very well during bull markets, and gives a warning when a bear market is near. The first warning signal came last week. After the S&P 500 hit an all-time high of 2,453 a few weeks ago, it was unable to move any higher. Last week, the S&P moved into a lower “box,” which is not a good sign. To be more specific, if the FANG stocks keep moving into lower boxes, that would be a warning sign. Keep in mind that Darvas only went long. In a bear market, he would move to the sidelines in cash until it was over. 

Another warning came from respected bond manager Jeffrey Gundlach, who recently said that the Fed will raise interest rates again. Gundlach suggests that stock investors pay close attention. He has previously warned that stocks may have a summer swoon. 

Bottom line: Watch this coming week closely to see if the S&P 500 can retake 2450. If it struggles to move much higher, then caution is strongly advised. After 8 years of a bull market, with the indexes and margin at all time highs in a low volatility environment, it wouldn’t be surprising if the market cracked, and soon. We will get more clues this week. (Note that the technical indicators turned from bullish to neutral, which is another clue.)

Here are the latest technical and sentiment indicators:

 Technical Indicators (daily chart)

S&P 500 is slightly above its 50-day MA = Bullish

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

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

S&P 500 support @ 2400

 

Sentiment Indicators (+RSI)

II survey: (June 27): 54.9% Bulls; 18.6% Bears = Bearish

AAII survey: (June 28): 29.7% Bulls; 26.9% Bears = Neutral

VIX: @ 10.40 = Bearish

RSI: (S&P 500) @ 49.36 = Neutral

Comment: Although this is a shortened week, it could give us clues as to market direction. The S&P is near support, and it’s anyone’s guess what it will do. Previously, when the S&P came near support levels, it typically bounced. Based on past behavior, the odds are good we will get a short-term bounce. Nevertheless, if the S&P keeps falling, it could slice below support levels (2400) and keep going. Anything is possible so observe what happens if and when the S&P reaches the 50-day moving average.

I’m also watching the FANG stocks, Facebook, Apple, Netflix, and Google, which got beat up pretty badly the last few weeks. If these stocks keep struggling, it would not be positive for the overall market.

 

 

Here are the latest technical and sentiment indicators:

Technical Indicators (daily chart)

S&P 500 is above its 50-day MA = 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 @ 2400

 

Sentiment Indicators (+RSI)

II survey: (June 20): 51.5% Bulls; 19.4% Bears = Bearish

AAII survey: (June 21): 32.7% Bulls; 28.9% Bears = Neutral

VIX: @ 10.02 = Bearish

RSI: (S&P 500) @ 58.74 = Neutral

 

Comment: After a strong Monday (June 19), the S&P petered out and went sideways the rest of the week. The lack of follow-through is not healthy, so the bulls are on warning. And yet, the bears were unable to take advantage. Last week was the kind of environment where “even a skunk couldn’t make a scent.”

There are times to be in the market, but wise traders also know when to be out. Obviously, the market environment could change on a dime, and it will one day. In fact, veteran traders warn that when a market moves this slowly and with so little volatility, it builds up energy, which will result in a huge market explosion, either up or down. If they are right, volatility should violently increase (no one knows when, however). 

Bottom line: As long as the sideways market continues, cash is your friend. Don’t forget that the indexes are at all-time highs, so it’s about time the market “puts up or shuts up.” Until then, remain on guard. There are too many people holding index funds on margin who believe that the market will never go down. History tells us that never ends well. 

 

Here are the latest technical and sentiment indicators:

Technical Indicators (daily chart)

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

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

MACD (S&P 500; 19,39,9) is even with its signal line = Neutral

S&P 500 support @ 2400

 

Sentiment Indicators (+RSI)

II survey: (June 13): 50.0% Bulls; 18.6% Bears = Bearish

AAII survey: (June 14): 32.3% Bulls; 29.5% Bears = Neutral

VIX: @ 10.38 = Bearish

RSI: (S&P 500) @ 60.93 = Neutral

Comment: The market is in a sideways range with an occasional intraday rally or selloff that typically deflates by the next day. The Nasdaq did take a beating but the S&P and Dow are holding near all-time highs. Although this market is dangerous, there is still room for it to go higher. No one is able to predict when the day of reckoning is coming (except that it always comes). You can ride the uptrend a bit longer knowing the party will end quickly and viciously one day. Or you can play it safe and sit on the sidelines primarily in cash.

I’m amazed that so many investors are blindly buying index funds at these levels. What happened to buy low and sell high? And yet, it’s possible that we could hit S&P 2500, or higher. As for me, the risk of catching those last few pennies on the upside is not worth the reward. That’s why I’m using very, very short-term trading strategies, both long and short. Most of the time, however, I am just watching and waiting, and not trading at all. I learned the hard way that it’s usually not profitable to trade during a sideways market.