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

 

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