The Weekly Trader

Here are the latest indicators:

S&P 500 one-month trend = Neutral

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

RSI: (S&P 500) @48.87 = Neutral

Intraday Volatility: Moderate

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: As you can see from the indicators above, we moved from a bearish environment last week to neutral. From an active trader’s perspective, last week was mostly a dud (except for a huge rally on Tuesday). Volume was generally low and volatility was subdued. The algos were working overtime to buy on every dip in a desperate attempt to prevent a major pullback, and they succeeded. Institutional buyers appeared to be on the sidelines. The result? The market started off very bullish but then entered into a tight range. For the moment, the market is in a neutral trend, which hopefully will be resolved by this week or next. (The S&P will need to climb above its 50-day moving average for the bulls to take control.)

A number of market forecasters are predicting there will be one more huge rally to 3000 on the S&P before the bull market officially ends. It’s possible, but I have my doubts. Nevertheless, if there is anything I’ve learned about this market, anything is possible.

Nevertheless, my theory is that we’re either in or very close to a bear market. If true, we could have a number of mind-blowing one-day rallies followed by days of pullbacks (like we did last week). An official bear market is announced when the market has pulled back by 20 percent or more. By that time, most investors will feel like the market has crashed.

Even if we do have a summer rally, I’m treating this as a bear market environment, which means rallies may not last long. If it’s truly a bear market, and I do not know for sure, shorting rallies (i.e. buying puts) will be more profitable than buying on the dip. Only the market knows the truth, so no matter what I think, after the market breaks out of this neutral position (either higher or lower), follow the trend.

Bottom line: The market is in a neutral trend for now, but it could explode higher or lower this week. Having a good supply of cash is still ideal in a dangerous market.

Here are the latest indicators:

S&P 500 one-month trend = Bearish

S&P 500 is slightly above its 200-day moving average = Bearish

RSI: (S&P 500) @41.82 = Neutral

Intraday Volatility: High

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: When you look at the numbers last week, the S&P 500 went down by only a few points. Unfortunately for the bulls, it felt much worse. Volatility was high once again (John Bogle, founder of Vanguard who ironically was born in 1929, commented that he hasn’t seen this level of volatility in his lifetime). Last week was an amazing roller coaster ride that made stock pickers nervous while traders celebrated. 

The odds are good that volatility will continue this week. This increased volatility is a huge warning sign that the stock market has become dangerous. Often, the increased volatility leads to unpleasant results. Nevertheless, most stock pickers are saying to themselves, “The market always comes back.” In fact, it’s possible we could have one huge blowoff top to S&P 3000 so all bullish investors can sell at the all-time high and live happily ever after. That’s what happened to bitcoin when it hit $19,700 for a few minutes before plunging to $7,000.

Unfortunately, the stock market does not make all your dreams come true. Instead of a blowoff top, it’s also possible we will have a drip-drip-drip (one day higher, two days down) market. That will be the most frustrating and damaging to investors. In fact, most investors are not selling right now because they have “hope” the market will “come back.”

First, just because the market comes back doesn’t mean your stocks will. And second, there is no rule that says the market will come back anytime soon. After the crash of 1929, it took the market 25 years to come back to its all-time high. I’m not predicting this will be repeated, but at the same time, anything is possible.

On that note, let me quote from John Hussman’s latest newsletter. Hussman has been bearish for a number of years (www.hussmanfunds.com): “Remember that markets rarely decline in one fell-swoop. Examine prior declines like 1973-74, 2000-02, and 2007-09. You’ll see steep plunges punctuated by advances of even 20% or so that keep investors hoping all the way down. I expect the path to the 1000 level on the S&P 500 to be quite volatile. Envision a series of steep individual plunges, each punctuated by furious advances, some which may persist for weeks or months and extend substantially higher before collapsing into a fresh cascade of losses…”

Going into this week, anything is possible. Nevertheless, I would not be surprised to see a huge rally during the week. But if this is truly the beginning of a bear market environment, the rallies won’t last long.

Bottom line: In my opinion, it’s the time to increase cash, read about previous bear markets, review your portfolio and what you own, and reduce positions in individual stocks that are up by obscene amounts.

Here are the latest indicators:

S&P 500 one-month trend = Bearish

S&P 500 is below its 50-day and 100-day moving average, although above its 200-day MA = Bearish

RSI: (S&P 500) @42.77 = Neutral

Intraday Volatility: High

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: It was a wild four days as volatility skyrocketed. In fact, I just finished writing an article for MarketWatch on how day trading strategies work in high volatility environments (like now). Although the market appears weak, we could have one final blow-off top. That’s what everyone is hoping for so they can get out in time.

A blow-off top happened to bitcoin (look at the chart) when it hit $19,982 a coin on December 17th. That was a clue to get out, but few did. As of Sunday night, bitcoin was trading at $7,000 per coin. (Not to pat myself on the back, but the week of December 18th, I wrote in this blog ( https://goo.gl/5BC9nK )  that bitcoin was a bubble based on the enthusiasm I observed from newcomers, the extreme chart, how amateurs were paying a fortune for bitcoins, and how Starbucks was filled with bitcoin buyers and brokers, similar to what I saw before the real estate crash in 2007). The clues were so obvious at that time.)

Back to reality: Instead of a blow-off top, the current market could just keep meandering lower like it’s doing now, ie. one day up, two days down, etc. That would be the most frustrating for nearly everyone, and the most dangerous. It would give false hope to the bulls while smashing the bears every few days. No one can predict market direction but as I wrote in the past, the party is nearly over, the police are at the door, so it’s time to reduce risk. After a nine year bull market, the coming bear market or correction is not going to be pretty, or pleasant for most people. This is the time to study, read market history, trade smaller positions if a beginner, and protecting your money. It also means increasing cash positions (only you can determine the percentages). 

Here are the latest indicators:

S&P 500 one-month trend = Bearish

S&P 500 is below its 50-day and 100-day moving average and on its 200-day MA = Bearish

RSI: (S&P 500) @29.98 = Oversold

Intraday Volatility: High

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: It was a shocking week for the bulls (just look at the dreadful indicators above.) Every rally was met with fierce resistance until the final Friday selloff. The market is back in “correction” territory as the S&P 500 fell to its 200-day moving average. 

There are three primary scenarios that may develop this week: 

Scenario #1: It’s likely the market will bounce again as it often does after a strong selloff. The “buy on the dippers” will enter with the algos and buy at the lows. With the futures already pointing for a higher Monday opening, this scenario is very likely. However, here’s where it can get tricky: If there is a bounce, it’s unlikely to last longer than a week or two. However, if the market blows back above the 100 and 50-day moving averages, then the bull market continues f0r a while longer. (In my opinion, it’s possible there is one last gasp of the dying bull market before it collapses into history). 

Scenario #2: It’s also possible that the market will reverse quickly early in the day or week and plunge below its 200-day moving average. This is the worst scenario for investors because losses will accumulate quickly. This could cause investor panic, which will cause even more selling. Another massive selloff will wipe the confidence from investors, whose mantra has been: “It always comes back.” 

Scenario #3: The final scenario is a sideways market with low volatility. Personally, I believe volatility is here to stay for awhile. 

Bottom line: The end of a bull market is difficult to trade. Spoiled bulls don’t want to admit the party is nearly over, while scared bears are nervous to short and be wrong again. This is another important week. Let’s see how long the opening rally lasts and if the market can lure more bulls into the market before it reverses direction. As I’ve repeatedly said in the past, learn how to short or buy puts, read about bear markets, and have strategies that can bring profits in both uptrends and downtrends. 

 

Here are the latest indicators:

S&P 500 one-month trend = Neutral

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

RSI: (S&P 500) @52.89 = Neutral

Intraday Volatility: Low (but should increase this week)

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: Last week, the bulls had a chance to run the ball down the field, but failed to score (market retreated last week). Hopeful bulls have their eye on S&P 3000, while the bears are cheering the multiple failed rallies, a huge warning sign. At this moment, it is impossible to know which direction the market will go this week. We are definitely at a crossroads, as the indicators reflect.

Because of the FOMC meeting this week, and the chance the Fed will raise interest rates, volatility should increase. It will not be an easy trading environment. Look for market reaction to the words and actions of the Fed. Investors are still ridiculously hopeful the market cannot go down for long, which makes me cautious.

Bottom line: The market could go in either direction and will likely go in both this week. It should be a wild ride before and after the FOMC meeting. Patience is needed until it’s obvious which side wins.