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.