Bullish or Bearish? Week of Feb. 27, 2017

Here are the latest technical and sentiment indicators:

Technical Indicators (daily chart)

S&P 500 is above its 50-, 100-, and 200-day MA = Bullish

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

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

S&P 500 support @ 2288 (50-day moving average)

 

Sentiment Indicators (+RSI)

II survey: (Feb. 21): 61.2% Bulls; 17.5% Bears = Bearish

AAII survey: (Feb. 22): 38.5% Bulls; 32.3% Bears = Neutral

VIX: @ 11.47 = Bearish

RSI: (S&P 500) @ 79.43 = Bearish

Comment: Typically, when a market goes sideways for a long time period, it will break out to one side or the other. That means this overbought market could get even more overbought. On the other hand, it could plunge. My strategy is the same as last week: I have a large cash position to take advantage of a major pullback while buying short-term call options while the market is in an uptrend.

Eventually, this bubble will end but no one can predict when. Speaking of bubbles, with an RSI of 79, we are in extreme overbought territory. Even retail investors are starting to think that “this time is different” as they pour money into equity index funds.

It’s hard for new traders to realize that sometimes, the best trade is not to trade at all. When the market isn’t making sense, like now, when most indicators are out of whack and the market keeps breaking new records (i.e. longest up days in a row, etc.), it’s time to minimize trades or stay out until there is a better setup. Obviously, few are heeding that advice. It’s not easy to be patient when the market keeps making new all-time highs.

Bullish or Bearish? Week of Feb. 20, 2017

Here are the latest technical and sentiment indicators:

Technical Indicators (daily chart)

S&P 500 is above its 50-, 100-, and 200-day MA = Bullish

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

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

S&P 500 support @ 2280, then 2238. 

 

Sentiment Indicators (+RSI)

II survey: (Feb. 14): 61.8% Bulls; 17.6% Bears = Bearish

AAII survey: (Feb. 15): 33.1% Bulls; 32.4% Bears = Neutral

VIX: @ 11.37 = Bearish

RSI: (S&P 500) @ 77.40 = Bearish

Comment: The uptrend continues as all technical indicators are pointing higher. At the same time, the sentiment indicators, and RSI, are telling us we are in extreme overbought territory, a huge red flag. That being said, trying to time the next pullback is risky, especially since we’re in a bubble. Rule #1: Never fight a bubble because you will not survive. That being said, the odds are very good there will be a strong pullback in the near future, followed by a buy-on-the-dip rally). 

Right now, the market is playing a game of musical chairs, and when the music stops, the S&P 500 will fall by 100 points or more. Can the market continue to go higher? Yes, it can. But with each passing day, as the bubble expands, the risks increase.

Bottom line: It’s too early to short (at the moment), but it’s risky to be a buy-and-hold investor. That’s why I favor buying short-term call options. (Remember, however, if the market moves sideways or plunges this week, do not hold call options). 

For further analysis of this overbought, stressed bull market, I strongly suggest you read Lance Roberts’ most recent post at realinvestmentadvice.com: goo.gl/xfXOzg

 

Bullish or Bearish? Week of Feb. 13, 2017

Here are the latest technical and sentiment indicators:

Technical Indicators (daily chart)

S&P 500 is above its 50-, 100-, and 200-day MA = Bullish

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

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

S&P 500 support @ 2280

 

Sentiment Indicators (+RSI)

II survey: (Feb. 7): 62.7% Bulls; 16.7% Bears = Bearish

AAII survey: (Feb. 8): 35.8% Bulls; 27.7% Bears = Neutral

VIX: @ 10.85 = Bearish

RSI: (S&P 500) @ 69.32 = Bearish

Comment: There was little change in the indicators: in general, technical indicators are bullish while sentiment indicators (and RSI) are overbought. If this is a bubble, and I personally believe it is, the market can still go higher from here. Eventually, the market gets exhausted and reverses direction, or there is a catalyst that sends everyone to the exits. As I’ve repeatedly said, although no one can predict the arrival of the next correction, wise traders and investors are increasing cash positions. That’s how you survive corrections, bear markets, and crashes.

It was reported that Vanguard has $4 trillion in index ETF assets as investors flee managed mutual funds. Imagine what will happen to that money when the next bear market arrives, when everyone tries to get out at once. By the way, bear markets always arrive…eventually. 

Note: I sometimes buy calls for short-term trades even though I believe the party will be ending one of these weeks or months. 

Bullish or Bearish? Week of Feb. 6, 2017

Here are the latest technical and sentiment indicators:

Technical Indicators (daily chart)

S&P 500 is above its 50-, 100-, and 200-day MA = Bullish

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

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

S&P 500 support @ 2277

 

Sentiment Indicators (+RSI)

II survey: (Jan. 31): 61.8% Bulls; 17.6% Bears = Bearish

AAII survey: (Feb. 1): 32.8% Bulls; 34.2% Bears = Neutral

VIX: @ 10.97 = Bearish

RSI: (S&P 500) @ 63.27 = Bearish

Comment: I’ve been re-reading a bestselling classic, “The Battle for Investment Survival,” by G.M. Loeb, a founding partner of E.F. Hutton. He says that to win the battle for investment survival, you must be willing to “hold funds uninvested while awaiting real opportunities.” I couldn’t agree more. With sentiment from financial advisors and financial media at all time highs, this is the time to increase cash positions. There is no doubt in my mind that a terrific pullback is coming, and having cash on the side will allow you to buy low. I certainly can’t predict when this correction will occur, but the odds have recently increased. Be patient, and be cautious. When this bubble starts to deflate, it will be an eye-opener for the masses.