Bull or Bear Market? (Week of March 3)

Each weekend, I analyze market conditions using sentiment and technical indicators. The goal is to determine if we are in a bullish, bearish, or sideways market environment. *

JUST RELEASED: Understanding Options (McGraw-Hill, 2E) and Understanding Stocks (McGraw-Hill, 2E): http://bit.ly/1bl0ZNk

My book, Predict the Next Bull or Bear Market and Win (Adams Media), comes out in May.

 

AAII survey (2/26/2014)

39.7% Bullish. 21.1% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investor’s Intelligence (2/25/2014)

53.5% Bullish. 17.2% Bearish.

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

CBOE Equity Put/Call Ratio: .58

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 13.99 (on 2/28/2014)

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, its 100-day, and 200-day MA, and pointing up.

Bearish (Downtrend): Index crosses below 50-, 100-, or 200-day MA.

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

 

MACD: MACD is above zero line, above 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 9-day signal line. MACD line crosses above zero line.

 

RSI: RSI is at 64.09 (on 2/28/2014)

Overbought: When RSI rises to 70 or above.

Oversold: 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 2.66% (on 2/28/2014)

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 similar to the week before. Technical indicators were pointing upwards, and sentiment indicators weren’t at extreme levels. However, retail investors poured money into equities last week, and as usual, at the wrong time. In addition, all bets are off this week because ofUkraine and China. If you follow only technical indicators, you’d still be bullish. On the other hand, if you look at the bigger picture, caution is advised.

Opinion: In my upcoming book, Predict the Next Bull or Bear Market and Win, I discuss the many signals and clues that can help determine market direction. For example, last week appeared to be positive but those late day selloffs were a significant red flag. Another red flag was the huge inflows into stock mutual funds.

As you know, I have written how emerging markets are in the danger zone and should be avoided. The evidence was everywhere, and yet, the CEOs of major brokerage firms went on TV and urged retail investors to buy, buy, buy emerging markets. Hopefully you didn’t listen.

Because of Ukraine (and other problems around the world), it will be a difficult week for the bulls (at least at the beginning). Judging by the futures (they are negative at this writing), the market will get hit early. Nevertheless, it won’t take much for the market to reverse direction later (a positive comment by the Fed might do it).

As I wrote last week, I am taking profits quickly. More than likely, volatility will continue. If you’re experienced, you can take advantage of this dangerous market using short-term trading strategies. If you’re a beginner, either stay on the sidelines or trade with very small share size. Red flags are everywhere.

Bottom line: Take this market one day at a time. It’s too early to determine if there will be a significant correction now or later. We’ve had too many false pullbacks, so caution is advised onboth sides. The last thing you want to be is a sitting duck, so be careful out there. Soon, retail investors will learn that 2014 will not be a cakewalk (like in 2013). Only the most astute traders and investors will make a substantial profit.

 

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

Bull or Bear Market? (Week of February 24)

Each weekend, I analyze market conditions using sentiment and technical indicators. The goal is to determine if we are in a bullish, bearish, or sideways market environment. *

JUST RELEASED: Understanding Options (McGraw-Hill, 2E) and Understanding Stocks (McGraw-Hill, 2E): http://bit.ly/1bl0ZNk

My book, Predict the Next Bull or Bear Market and Win (Adams Media), comes out in May.

 

AAII survey (2/19/2014)

42.2% Bullish. 22.8% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investor’s Intelligence (2/18/2014)

46.5% Bullish. 17.2% Bearish.

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

CBOE Equity Put/Call Ratio: .58

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 14.68 (on 2/21/2014)

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, its 100-day, and 200-day MA, and pointing up.

Bearish (Downtrend): Index crosses below 50-, 100-, or 200-day MA.

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

 

MACD: MACD is above zero line, above 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 9-day signal line. MACD line crosses above zero line.

 

RSI: RSI is at 57.86 (on 2/21/2014)

Overbought: When RSI rises to 70 or above.

Oversold: 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 2.73% (on 2/21/2014)

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 sentiment indicators aren’t at extreme levels so they aren’t offering much guidance. The market is in a sluggish uptrend, but it’s still an uptrend. As always, don’t fight the trend. Nevertheless, the Friday selloff during the last minutes of the trading day might be significant, so we’ll have to wait and see. Right now, taking a wait and see attitude is recommended. The goal is to find the right opportunity to pounce. It’s only a matter of time before that opportunity appears.

Opinion: In my opinion, we’re getting closer to a major pivot point, but it’s difficult to predict. Based on a number of clues and indicators (which I discuss in my book, Predict the Next Bull or Bear Market and Win), this tired bull market is in a fight for its life.

I spoke with a professional trader friend of mine about the current market. He’s a conservative trader. Like me, he knows the day of reckoning is coming. He is waiting on the sidelines, unwilling to short, but also unwilling to go long. His strategy is to wait until the market plunges (and there is blood in the street), and then go long. Right now, there are few bargains. Similar to 1999, some popular stocks have obscene P/E levels. Based on market history, that won’t last indefinitely.

Emerging markets are still in turmoil, and more pain is expected. As I said last week, don’t listen to those who recommend buying EM on the dip, even if they are the CEOs of major brokerage firms. It’s financial suicide to buy when so many EM countries are struggling. Yes, one day EM will be a buying opportunity, but it isn’t now (in my opinion).

It’s possible that the bulls will pull a magical rabbit out of its hat and push this market higher (with help from the Fed). And that’s why shorting is so dangerous now. It takes discipline to patiently sit and wait for the right opportunity.

Not much has been said about bonds but the odds are good that the yield on the 10-year will surpass 3 percent in the future. That will be an interesting development. When bonds get crushed again, the million-dollar question is what happens next. Will bondholders move to the safety of cash for near zero returns, or will they run to the stock market? We will discuss that scenario when it happens.

As I said last week, it’s a trader’s market, so if you’re participating, take profits fast. If we do switch from a bull to a bear market in the future, there will be opportunities to short (or buy inverse ETFs), but until then, be prepared for anything. It’s not the time to commit too heavily to one side of the other.

Bottom line: When the market is ornery like this, and even “a skunk can’t make a scent,” as Jesse Livermore says, it’s best to watch and wait for the market to give us guidance. The uptrend is intact, but it’s very tepid. And that is another reason why this market is so difficult to manage.

 

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

Bull or Bear Market? (Week of February 17)

Each weekend, I analyze market conditions using sentiment and technical indicators. The goal is to determine if we are in a bullish, bearish, or sideways market environment. *

JUST RELEASED: Understanding Options (McGraw-Hill, 2E) and Understanding Stocks (McGraw-Hill, 2E): http://bit.ly/1bl0ZNk

My book, Predict the Next Bull or Bear Market and Win (Adams Media), comes out in May.

 

AAII survey (2/12/2014)

40.1% Bullish. 27.3% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investor’s Intelligence (2/11/2014)

41.8% Bullish. 17.4% Bearish.

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

CBOE Equity Put/Call Ratio: .57

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 13.57

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, its 100-day, and 200-day MA, and pointing up.

Bearish (Downtrend): Index crosses below 50-, 100-, or 200-day MA.

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

 

MACD: MACD is even with zero line, above 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 9-day signal line. MACD line crosses above zero line.

 

RSI: RSI is at 60.18 (on 2/14/2014)

Overbought: When RSI rises to 70 or above.

Oversold: 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 2.74% (on 2/14/2014)

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 uptrend continued until Friday, as reflected in the sentiment numbers (i.e. bearish sentiment decreased while bullish sentiment increased). The VIX moved back to thecomplacent zone along with the put-call ratio. Technical indicators made a remarkable recovery, and as we start the week, the uptrend is intact. That’s the good news. The bad news: Keep reading.

Opinion: Following the market trend would have produced excellent returns over the last five years if you had bought and held the major market indexes. In a bull market, that was the right move. Unfortunately, bull markets don’t last forever (although many investors think they do). In fact, one of the most important jobs you have is to determine when one trend ends and another begins. In my opinion, we are getting very close to a trend change.

As the market has changed, I have changed strategies. I used to sit back and take advantage of long-term trends (especially bullish ones). Recently, the uptrends and downtrends are not long term, but short term. As a result, I’ve had to switch to short-term trading strategies. Put another way, in this dangerous market environment, uptrends and downtrends don’t last long: days or weeks, and sometimes months.

Because the market has become more challenging, astute traders will take profits quickly, look for intraday reversals and other evidence that the trend is changing. I can’t stress enough how treacherous this market is. If you’re caught on the wrong side of a trade, you could lose a lot of money. (One method I use to protect profits or minimize losses is using call and put options with short expiration dates. Although not for everyone, I’ll discuss this strategy in a future column.)

Many retail investors who made easy money last year without too much effort may think this year will be the same. Perhaps they are buying on the dip, assuming the market will run up indefinitely. Few are aware that underlying market conditions are changing. Therefore, the higher the market goes, the more dangerous it becomes. Although novice investors believe the sky is blue, there are storm clouds brewing.

In the near future, we’re going to have short-term uptrends followed by short-term downtrends. But one of these days, a winner will be declared, bull or bear. Right now, this market is difficult to predict, which is why I follow trends. Unfortunately, when the trend changes every few days or weeks, it’s not easy to get it right.

As I’ve repeatedly said, one of the biggest known (and unknown) dangers are in emerging markets. Millions of dollars have been pulled from emerging markets over the last few months, which is probably why the CEOs of several brokerage firms as well as some money managers said that emerging markets are a long term buying opportunity (“be long, not short,” one CEO suggested). I hope you don’t listen to them. In my opinion, the pain from EM will get much worse before it gets better. Buying EM now is too risky. Over the next three to six months, I will remember those who urged investors to buy emerging markets on the dip. It will be interesting to see if they were right.

Bottom line: Be ready to take profits quickly in this volatile market. Buyers ran the Dow past 16,000, which I said was possible. But lurking in the shadows are unknown pitfalls. This is the time to be cautious and alert. According to the indicators, we are going higher, but it’s not a slam-dunk. As for me, I am on the lookout for failed rallies and other evidence this bull market is coming to an end.

 

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

Bull or Bear Market? (Week of February 10)

Each weekend, I analyze market conditions using sentiment and technical indicators. The goal is todetermine if we are in a bullish, bearish, or sideways market environment. *

JUST RELEASED: Understanding Options (McGraw-Hill, 2E) and Understanding Stocks (McGraw-Hill, 2E): http://bit.ly/1bl0ZNk

My book, Predict the Next Bull or Bear Market and Win (Adams Media), comes out in May.

 

AAII survey (2/4/2014)

27.9% Bullish. 36.4% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investor’s Intelligence (2/4/2014)

45.9% Bullish. 17.4% Bearish.

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

CBOE Equity Put/Call Ratio: .68

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 15.29

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 dropped below its 50-day moving average (but above its 100-day and 200-day MA), and pointing up.

Bearish (Downtrend): Index crosses below 50-, 100-, or 200-day MA.

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

 

MACD: MACD is below 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: RSI is at 49.69 (on 2/7/2014)

Overbought: When RSI rises to 70 or above.

Oversold: 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 2.67% (on 2/7/2014)

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

 

Analysis: After a rough start (at one point, the Dow was down over 400 points over two days), the market recovered all of its losses. Sentiment indicators fell during the week as nervous retail investors fled to bonds for safety. The S&P is still below its 50-day moving average but pointing straight up. MACD still giving a negative signal. With Janet Yellen testifying before Congress on Tuesday morning, it could be a market-moving event. Based on the last two days, the uptrend continues as we start the week. That could change on a dime.

Opinion: What a week! Just when the Dow seemed doomed, and broke below its 100-day (and 50-day) moving averages, it made a dramatic turnaround. That was an important signal, one that can’t be ignored.

What we have right now is a short-term uptrend in a dangerous market. If you get whiplash this week, it’s understandable. This is a trader’s market, which means you better take any profits fast or they could disappear.

It’s possible the uptrend will continue for a while (similar to what happened in June). On the other hand, because it’s a dangerous market, bad breaking news could send the market lower. In other words, this week is a coin flip.

If the short-term uptrend continues (with the assistance of a dovish Janet), let it ride. However, if this uptrend stalls and reverses, then the chances of a downtrend (or worse) increases. The bulls have an advantage based on Thursday and Friday’s action, so all we can do is wait and see. Anything is possible, which means the market could run back above 16,000 (if you’re short, be prepared). A failed rally, however, will not be pretty for the bulls (if you’re long, be prepared).

Keep in mind that retail investors lost some faith in the market over the last month. It would be some achievement to run the market past 16,000, but anything is possible in an unpredictable market. If you’re a short-term trader, you can take advantage of the volatility and trade with the trend (but be ready to take profits or cut losses quickly). If you have a longer term perspective, being on the sidelines is a comfortable place to be.

Because the market is so unpredictable, thousands of articles and commentary will appear on “why” the market is going up or down. Focus on “what” is happening rather than why. The why won’t be known until later. (Note: I discuss this thoroughly in my upcoming book, Predict the Next Bull or Bear Market and Win (Adams Media).

Bottom line: This is a dangerous market.  Based on the indicators, this market could go in either direction. That 300-point drop in the Dow along with a bearish month cannot be forgotten. Therefore, it will take more than a two-day rally to convince me that the worst is over. However, I also know that the short-term uptrend could continue for a while. Patience is needed until we find out what is really going on with this market.

 

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

6 easy ways to lose money in stocks

Opinion: Ridiculous investment advice you should never follow

MIAMI (MarketWatch) — On CNN, “Anderson Cooper 360” features a segment called “Ridiculist” that showcases certain people’s most ridiculous behavior. That got me thinking about some of the most ridiculous investment advice I’ve ever heard.

Here is my list, though I’m sure you can add ridiculous advice you’ve received from “experts” who should know better.

1. There’s always a bull market somewhere

There might be a bull market somewhere, but it won’t always be in stocks. And if there is a bull market somewhere, there must be a bear market somewhere, too. The problem with this comment is that it makes people believe the stock market always goes up. As many investors already know, that is most definitely not the case.

In truth, bear markets are a natural part of the market cycle, so they should not be feared or ignored. It would be nice if the market always went up, but that is unrealistic and dangerous.

Therefore, telling investors there is always a bull market somewhere makes them feel like they are missing out on something big. It also makes people believe you should only be bullish. If you believe that the market always goes up, as this statement implies, the market will teach you a lesson you’ll never forget.

2. The ‘little guy’ is causing the market to fall

When the S&P 500 or some other market benchmark is falling, analysts always want to blame someone. The retail investor is an easy scapegoat. I heard a commentator make this ridiculous comment during a recent market selloff. Come on! The “little guy” (i.e. retail investors) do not have the power to move the markets (unless there is mass panic). In fact, the retail investor is usually the last to get out of the market, and often at the bottom.

In the early days of a market correction or pullback, it’s almost always institutional investors and other professionals that are rushing the exits. So please, stop blaming the little guy. If anything, blame them for selling too late because they also believed this next bit of ridiculous advice.

3. Your stock will come back to even

The conventional wisdom is this: If your stock goes down, you should buy more because you are getting a bargain. If your stock goes up, you should buy more because you’ll be missing out on a great opportunity.

In reality, there are times when your stocks, even some of the best, do not come back to even or at all (see Bear Stearns and Lehman Brothers). If you are going to invest in individual stocks, ignore this ridiculous advice. Hoping that your stock will come back to even will cost you money. In fact, hope has no place in the vocabulary of any investor. A better strategy is to sell stocks once they decline more than 7% or 8%.

4. Buy on the dip

Buying on the dip during a bull market or when the market is in an uptrend can work, but if you buy on the dip during a downtrend or bear market, you could get slaughtered.

Even worse, some people buy on the dip while they are holding losing positions. Here’s a rule: Don’t ever buy additional shares of a losing stock, especially if it is still going down.

That losing stock is down for a reason, and adding more shares of a loser is ridiculous.

Unfortunately, buy on the dip is repeated often. Recently, some commentators suggested that retail investors buy emerging markets. Ridiculous! It’s highly likely that emerging markets are not going to bounce back any time soon.

Bottom line: Buying stocks on the way down (i.e. the dip) is bad advice, especially in a dangerous market. Instead, buy stocks after they’ve stopped falling and are on the way up.

5. You can get rich quickly

There is nothing more ridiculous than books that promise to make you rich in the stock market. Yes, you can win, build wealth, and make profits, but to believe that after reading a book you will get rich is ridiculous, and is only designed to sell books.

It’s doubtful that even one reader will “get rich” in the stock market after reading a book about the market, especially if they are starting with only a few thousand dollars. Indeed, when get-rich type books appear on the bestseller lists, that’s a signal that the market has reached a top.

6. Buy low, sell high

Similar to buy on the dip, the “buy low and sell high” mantra has been drilled into investors since the early days of the stock market.

Unfortunately, this cliché has caused many investors to lose big in the market. For starters, the terms “low” and “high” are difficult to define. No one knows what is low or high until after stocks have reached these points.

Here’s an idea: Buy when the market is in an uptrend, and sell or reduce your position when the market becomes dangerous. Bernard Baruch, the successful financier and economist, said of this strategy: “Don’t try to buy at the bottom or sell at the top. It can’t be done, except by liars.”


Michael Sincere’s newest books, “Understanding Options” (2nd Edition) and “Understanding Stocks” (2nd Edition) have just been released by McGraw-Hill. Sincere’s website (www.michaelsincere.com) uses indicators and analysis to determine if stocks are in a bull or bear market.