Bullish or Bearish? Week of Oct. 16, 2017

Here are the latest technical and sentiment indicators:

Technical Indicators (daily chart)

S&P 500 is above its 50-day MA = Bullish

MACD (S&P 500; 19,39,9) is above its zero line = Bullish

MACD (S&P 500; 19,39,9) is above its signal line = Bullish

S&P 500 support @ 2500

 

Sentiment Indicators (+RSI)

II survey: (Oct. 10): 60.4% Bulls; 15.1% Bears = Bearish

AAII survey: (Oct. 11): 39.8% Bulls; 26.9% Bears = Neutral

VIX: @ 9.61 = Bearish

RSI: (S&P 500) @ 72.39 = Overbought

Comment: I’ve run out of ways to describe how overbought this market is. This from Adam Taggart via Peak Prosperity (thanks to Lance Roberts for the heads-up):

  1. It has been over 100 months (more than 8.5 years) since the current bull market began in April of 2009.
  2. It has been 15 months since the last (and very brief) drop of 5% in the S&P 500.
  3. This past September saw record low volatility, including a stretch now claimed to be “the most peaceful days in the history of the markets.”
  4. Since last year’s presidential election, at which point the markets were already considered dangerously overvalued, the DJIA is up over 20%.
  5. The Dow, S&P and the Nasdaq are all trading at all-time highs.

Anyway you look at it, this low volatile market is in the danger zone and has been for a while. Could the market continue to go higher from here? Absolutely. That is why so many investors are not selling their index funds or stocks. Apparently, most investors believe they will be able to get out in time. When the next correction and bear market arrives (it always arrives), it’s unknown how millions of investors will know it’s time to get out. Many won’t get out and will grit their teeth and hold (typically until the pain gets too great).

Bottom line: This bull market has gone on longer and farther than most imagined. Even a number of bullish pros are getting cautious. When you look at the data points above, you must be cautious, using stop losses when possible. Technically, we’re at historic levels, and when this market unwinds one day, it will be mammoth. The longer the market rises, the more most investors believe the market will keep rising (it’s human nature). In addition, look at the RSI, at over 70, which is always a clue a short-term pullback is near (when over 70).

Once again, read Lance Robert’s most recent analysis of the market here: https://goo.gl/uWfZnc

 

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