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.