Bullish or Bearish? Week of February 5, 2018

Here are the latest indicators:

S&P 500 one-month trend = Neutral

S&P 500 is above its 50-day moving average but pointing down = Neutral

RSI: (S&P 500) @46.08 = Neutral

Intraday Volatility: High (Ideal for traders). 

Comment:My latest MarketWatch article came out on Thursday morning, one day before the Dow 665 selloff, which was well-timed (for once). Here is the link: https://goo.gl/Kz4x4F

I made changes (above) to my indicators. First, I am no longer using the VIX because it was worthless as a predictive indicator. Instead, I added my own indicator, Intraday Volatility, which I will evaluate each week. I also removed the weekly sentiment indicators, but I will mention them if they reach extreme levels (as they did a few weeks ago). If you want to monitor technical and sentiment indicators, go to https://goo.gl/eT3fzA . Dr. Yardeni keeps a daily list of multiple indicators. I think you’ll find them very useful. 

For the first time in a long time, volatility returned to the market. This is good news for traders but not so much for investors. Bullish investors have had a wonderful ride for the last nine years, and they will not go down without a fight. Although there are signs the party is almost over and the police are at the door, the bulls don’t seem worried. 

And why should they?  For nine years, every time there was a major or minor pullback (it’s been two years since the last one), the market rebounded, then continued even higher. In fact, some analysts are predicting S&P 3000 in the future (although many expect a short term pullback first). Most investors see the 2 percent pullback as a “buying opportunity.” They could be right, but they could also be wrong. 

If the bulls are wrong, and we get a full fledged correction (5 to 15 percent), investors will feel pain. This week is very important: all we can do is see if the market rebounds during the day or continues to sell off. Pay close attention to the market close. For years, any selloff was met with a late-day rally. If the market keeps plunging during the week, that would be a significant change (a negative one). In addition, keep your eye on the 10-year yield, which is currently at 2.85%. At 3%, there will be fireworks. 

Bottom line: The bears have the ball and are running with it, but the bulls are prepared to stop them in their tracks. 


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