Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.
RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk
AAII survey (4/15/2015)
32.1% Bullish. 45.1% Neutral. 22.8% Bearish.
Bearish: If sentiment is over 50% bullish.
Bullish: If sentiment is over 50% bearish.
Investors Intelligence (4/14/2015)
50.5% Bullish. 13.9% Bearish.
Bearish: If sentiment is over 60% bullish. ( Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)
Bullish: If sentiment is over 60% bearish.
VIX: 13.89 (on 4/17/2015)
Bearish: Less than or near 12.
Bullish: Greater than or near 40.
RSI (S&P 500): RSI is at 48.88 (on 4/17/2015)
Overbought (i.e. Bearish): When RSI rises to 70 or above.
Oversold (i.e. Bullish): When RSI falls to 30 or below.
Note: RSI can remain overbought or oversold for extended time periods.
Moving Averages (daily): The S&P is below its 50-day moving averages and pointing down.
Bearish (Short-term Downtrend): Index crosses under 50-day, 100-day, or 200-day MA.
Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.
MACD (S&P 500): MACD is above its zero line and slightly above 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 zero line. MACD line crosses above 9-day signal line.
Bonds: U.S. 10-year yield is at 1.85% (on 4/17/2015).
Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). Note: Bonds keep rallying.
Analysis: The indexes seesawed back and forth last week until Friday, when the market sold off over 1% by the end of the day. It was an orderly selloff as most investors still have a bullish bias (although some retail investors say they are getting more cautious). Based on technical indicators, it is too early to say if Friday’s selloff was meaningful. We’ll need to watch what happens this week to see if the short-term downturn continues. The financial media does not see any danger signs, although Greece is in the news along with earnings. It will be interesting to see how the markets react to current events.
Opinion: With Greece looming in the background and earnings announcements about to take center stage, it could be a wild week. Bullish investors are convinced the market can go nowhere but up, so we’ll soon see if they are right.
There is a lot of conflicting data and news this week, so it’s anyone’s guess what will happen. At this writing, the odds favor the bears, but that could change if bad news is ignored. Monday will tell us a lot, and according to the S&P futures, the opening will be slightly positive.
Last week, I suggested that you watch what happens when the Dow hits 18,000 and the S&P hits 2100. As you may have noticed, the indexes crumbled soon after hitting these targets. That was a very negative sign. All we can do now is wait to observe what happens if the indexes try again.
Bottom line: If the market is in the danger zone, as I believe, then it will be a very rough week for the bulls. On the other hand, if the bull market is intact, as most financial pros believe, then we’ll be back at Dow 18,000 and S&P 2100.