Bullish or Bearish? Week of April 16, 2018

Here are the latest indicators:

S&P 500 one-month trend = Neutral

S&P 500 is slightly below its 50-day moving average = Neutral

RSI: (S&P 500) @48.87 = Neutral

Intraday Volatility: Moderate

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: As you can see from the indicators above, we moved from a bearish environment last week to neutral. From an active trader’s perspective, last week was mostly a dud (except for a huge rally on Tuesday). Volume was generally low and volatility was subdued. The algos were working overtime to buy on every dip in a desperate attempt to prevent a major pullback, and they succeeded. Institutional buyers appeared to be on the sidelines. The result? The market started off very bullish but then entered into a tight range. For the moment, the market is in a neutral trend, which hopefully will be resolved by this week or next. (The S&P will need to climb above its 50-day moving average for the bulls to take control.)

A number of market forecasters are predicting there will be one more huge rally to 3000 on the S&P before the bull market officially ends. It’s possible, but I have my doubts. Nevertheless, if there is anything I’ve learned about this market, anything is possible.

Nevertheless, my theory is that we’re either in or very close to a bear market. If true, we could have a number of mind-blowing one-day rallies followed by days of pullbacks (like we did last week). An official bear market is announced when the market has pulled back by 20 percent or more. By that time, most investors will feel like the market has crashed.

Even if we do have a summer rally, I’m treating this as a bear market environment, which means rallies may not last long. If it’s truly a bear market, and I do not know for sure, shorting rallies (i.e. buying puts) will be more profitable than buying on the dip. Only the market knows the truth, so no matter what I think, after the market breaks out of this neutral position (either higher or lower), follow the trend.

Bottom line: The market is in a neutral trend for now, but it could explode higher or lower this week. Having a good supply of cash is still ideal in a dangerous market.

Bullish or Bearish? Week of April 9, 2018

Here are the latest indicators:

S&P 500 one-month trend = Bearish

S&P 500 is slightly above its 200-day moving average = Bearish

RSI: (S&P 500) @41.82 = Neutral

Intraday Volatility: High

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: When you look at the numbers last week, the S&P 500 went down by only a few points. Unfortunately for the bulls, it felt much worse. Volatility was high once again (John Bogle, founder of Vanguard who ironically was born in 1929, commented that he hasn’t seen this level of volatility in his lifetime). Last week was an amazing roller coaster ride that made stock pickers nervous while traders celebrated. 

The odds are good that volatility will continue this week. This increased volatility is a huge warning sign that the stock market has become dangerous. Often, the increased volatility leads to unpleasant results. Nevertheless, most stock pickers are saying to themselves, “The market always comes back.” In fact, it’s possible we could have one huge blowoff top to S&P 3000 so all bullish investors can sell at the all-time high and live happily ever after. That’s what happened to bitcoin when it hit $19,700 for a few minutes before plunging to $7,000.

Unfortunately, the stock market does not make all your dreams come true. Instead of a blowoff top, it’s also possible we will have a drip-drip-drip (one day higher, two days down) market. That will be the most frustrating and damaging to investors. In fact, most investors are not selling right now because they have “hope” the market will “come back.”

First, just because the market comes back doesn’t mean your stocks will. And second, there is no rule that says the market will come back anytime soon. After the crash of 1929, it took the market 25 years to come back to its all-time high. I’m not predicting this will be repeated, but at the same time, anything is possible.

On that note, let me quote from John Hussman’s latest newsletter. Hussman has been bearish for a number of years (www.hussmanfunds.com): “Remember that markets rarely decline in one fell-swoop. Examine prior declines like 1973-74, 2000-02, and 2007-09. You’ll see steep plunges punctuated by advances of even 20% or so that keep investors hoping all the way down. I expect the path to the 1000 level on the S&P 500 to be quite volatile. Envision a series of steep individual plunges, each punctuated by furious advances, some which may persist for weeks or months and extend substantially higher before collapsing into a fresh cascade of losses…”

Going into this week, anything is possible. Nevertheless, I would not be surprised to see a huge rally during the week. But if this is truly the beginning of a bear market environment, the rallies won’t last long.

Bottom line: In my opinion, it’s the time to increase cash, read about previous bear markets, review your portfolio and what you own, and reduce positions in individual stocks that are up by obscene amounts.

Bullish or Bearish? Week of April 2, 2018

Here are the latest indicators:

S&P 500 one-month trend = Bearish

S&P 500 is below its 50-day and 100-day moving average, although above its 200-day MA = Bearish

RSI: (S&P 500) @42.77 = Neutral

Intraday Volatility: High

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: It was a wild four days as volatility skyrocketed. In fact, I just finished writing an article for MarketWatch on how day trading strategies work in high volatility environments (like now). Although the market appears weak, we could have one final blow-off top. That’s what everyone is hoping for so they can get out in time.

A blow-off top happened to bitcoin (look at the chart) when it hit $19,982 a coin on December 17th. That was a clue to get out, but few did. As of Sunday night, bitcoin was trading at $7,000 per coin. (Not to pat myself on the back, but the week of December 18th, I wrote in this blog ( https://goo.gl/5BC9nK )  that bitcoin was a bubble based on the enthusiasm I observed from newcomers, the extreme chart, how amateurs were paying a fortune for bitcoins, and how Starbucks was filled with bitcoin buyers and brokers, similar to what I saw before the real estate crash in 2007). The clues were so obvious at that time.)

Back to reality: Instead of a blow-off top, the current market could just keep meandering lower like it’s doing now, ie. one day up, two days down, etc. That would be the most frustrating for nearly everyone, and the most dangerous. It would give false hope to the bulls while smashing the bears every few days. No one can predict market direction but as I wrote in the past, the party is nearly over, the police are at the door, so it’s time to reduce risk. After a nine year bull market, the coming bear market or correction is not going to be pretty, or pleasant for most people. This is the time to study, read market history, trade smaller positions if a beginner, and protecting your money. It also means increasing cash positions (only you can determine the percentages). 

Bullish or Bearish? Week of March 26, 2018

Here are the latest indicators:

S&P 500 one-month trend = Bearish

S&P 500 is below its 50-day and 100-day moving average and on its 200-day MA = Bearish

RSI: (S&P 500) @29.98 = Oversold

Intraday Volatility: High

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: It was a shocking week for the bulls (just look at the dreadful indicators above.) Every rally was met with fierce resistance until the final Friday selloff. The market is back in “correction” territory as the S&P 500 fell to its 200-day moving average. 

There are three primary scenarios that may develop this week: 

Scenario #1: It’s likely the market will bounce again as it often does after a strong selloff. The “buy on the dippers” will enter with the algos and buy at the lows. With the futures already pointing for a higher Monday opening, this scenario is very likely. However, here’s where it can get tricky: If there is a bounce, it’s unlikely to last longer than a week or two. However, if the market blows back above the 100 and 50-day moving averages, then the bull market continues f0r a while longer. (In my opinion, it’s possible there is one last gasp of the dying bull market before it collapses into history). 

Scenario #2: It’s also possible that the market will reverse quickly early in the day or week and plunge below its 200-day moving average. This is the worst scenario for investors because losses will accumulate quickly. This could cause investor panic, which will cause even more selling. Another massive selloff will wipe the confidence from investors, whose mantra has been: “It always comes back.” 

Scenario #3: The final scenario is a sideways market with low volatility. Personally, I believe volatility is here to stay for awhile. 

Bottom line: The end of a bull market is difficult to trade. Spoiled bulls don’t want to admit the party is nearly over, while scared bears are nervous to short and be wrong again. This is another important week. Let’s see how long the opening rally lasts and if the market can lure more bulls into the market before it reverses direction. As I’ve repeatedly said in the past, learn how to short or buy puts, read about bear markets, and have strategies that can bring profits in both uptrends and downtrends. 

 

Bullish or Bearish? Week of March 19, 2018

Here are the latest indicators:

S&P 500 one-month trend = Neutral

S&P 500 is slightly above its 50-day moving average = Neutral

RSI: (S&P 500) @52.89 = Neutral

Intraday Volatility: Low (but should increase this week)

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: Last week, the bulls had a chance to run the ball down the field, but failed to score (market retreated last week). Hopeful bulls have their eye on S&P 3000, while the bears are cheering the multiple failed rallies, a huge warning sign. At this moment, it is impossible to know which direction the market will go this week. We are definitely at a crossroads, as the indicators reflect.

Because of the FOMC meeting this week, and the chance the Fed will raise interest rates, volatility should increase. It will not be an easy trading environment. Look for market reaction to the words and actions of the Fed. Investors are still ridiculously hopeful the market cannot go down for long, which makes me cautious.

Bottom line: The market could go in either direction and will likely go in both this week. It should be a wild ride before and after the FOMC meeting. Patience is needed until it’s obvious which side wins.

Bullish or Bearish? Week of March 12, 2018

Here are the latest indicators:

S&P 500 one-month trend = Bullish

S&P 500 is firmly above its 50-day moving average = Bullish

RSI: (S&P 500) @59.20 = Neutral

Intraday Volatility: Low

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: Last week, the market shrugged off a temporary downtrend and rocketed higher, ending in a huge Friday rally. Volatility was suppressed and the bulls took back control of the market. As we enter this week, no one can predict what is going to happen next. It “appears” as if this rally has some legs, but we’ll know by Monday afternoon. If the market does have room to run, if trading, don’t fight the uptrend and join the bulls.

As traders, however, we must be prepared to sell when rallies run out of steam, as they always do. Although the bulls are in control for now, the bears must patiently wait for another opportunity to pounce, probably when everyone thinks the worst is over.

Bottom line: Join the bull party if it continues this week but be prepared to sell quickly when the market slows down or reverses.

Bullish or Bearish? Week of March 5, 2018

Here are the latest indicators:

S&P 500 one-month trend = Bearish

S&P 500 is well below its 50-day moving average and slightly above its 100-day MA = Bearish

RSI: (S&P 500) @45.62 = Neutral

Intraday Volatility: Increasing

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: As expected, intraday volatility increased last week, providing opportunities for traders and anxiety for investors. Volatility should also increase this week as well due to trade wars talk, among other things (i.e. interest rates). With the S&P 500 well below its 50-day moving average and below the 2700 line in the sand, the bears are in control at the moment. However, the bulls will try and retake the 50-day moving average so be prepared for sudden rallies.

Predicting next week is a fool’s errand as the market will once again go in both directions. It’s important to recognize that the market is changing before our eyes. I am guessing that the bull market is slowly coming to an end but we need more evidence first. If my theory is correct, it will not be a pleasant experience for most people but there will be money-making opportunities if you are sharp, and paying attention. Try to keep an open mind, i.e. that the market can go in both directions. It might take a while for a long-term trend to take hold as the bulls and bears fight it out each day.

Bottom line: Trade small if are a new trader, and if you are an investor, have hedges in place in case of worst case scenarios. Let’s see if the bulls can ride the market back above SPX 2700. 

Bullish or Bearish? Week of February 26, 2018

Here are the latest indicators:

S&P 500 one-month trend = Neutral

S&P 500 is a few points above its 50-day moving average = Neutral

RSI: (S&P 500) @53.70 = Neutral

Intraday Volatility: Neutral (but with potential to increase this week)

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: As I wrote last week, the line in the sand was 2700 on the S&P 500. After a rough start, the S&P dropped well below 2700 early last week, even touching its 200-day moving average for a few hours. By the end of the week, however, the bulls (with help from the algos) saved the market and ran it back to its 50-day moving average. In fact, the market ended nearly where it began last week.

So here we are again. Bullish investors are feeling even more invincible while the bears wonder if they will ever win the long game. This week should be volatile because of the Humphrey-Hawkins hearings. Chairman Powell will testify on Tuesday, February 27 at 10:00 a.m. ET, and again on Thursday, March 1 at 10:00 a.m. Based on what Powell says, it is highly likely the market will be volatile depending on whether Wall Street likes or doesn’t like Powell’s answers.

Bottom line: The bulls once again pulled a rabbit out of the hat and saved the week. Let’s stay tuned to what Powell says, and more important, how the market reacts. Be cautious trading during the hearings as volatility is likely to explode at times. The market could go in either direction (and most likely, in both directions).

Bullish or Bearish? Week of February 19, 2018

Here are the latest indicators:

S&P 500 one-month trend = Neutral to Bearish

S&P 500 is near its 50-day moving average = Neutral

RSI: (S&P 500) @51.08 = Neutral

Intraday Volatility: Neutral (but with potential to increase)

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: After a five-day rally, the market is due to take a breather, or worse. We went too far and too fast on questionable buying. “Questionable” because it appears as if the algos and other entities ran the market higher, as often happens. We went far and fast but could only surpass the S&P’s 50-day moving average by no more than a few points. This week, if the market soundly rises above its 50-day moving average, the bull market continues. If, on the other hand, it fails, then the market will be in for a rough week. 

Because severe technical damage was done to the market in early February, I would not be surprised to see a pullback this week. A one-week party cannot erase the damage done, so be prepared for volatility to increase moving forward. Many investors believe the worst is over so any pullback will be a surprise. As always, keep your eye on the 10-year yield (the closer it gets to 3%, the more volatility will increase), and also on the 50-day moving average. As always, the market is always right and the 50-day moving average is the line in the sand.

Bullish or Bearish? Week of February 12, 2018

Here are the latest indicators:

S&P 500 one-month trend = Bearish

S&P 500 is below its 50-day and 100-day moving averages = Bearish

RSI: (S&P 500) @34.83 = Oversold

Intraday Volatility: Extremely High (Ideal for traders). 

Daily results of multiple indicators (from Yardeni Research): https://goo.gl/eT3fzA

Comment: What a difference a week makes! The financial media are reporting that last week was the most volatile in market history. After nine years, some of the riskiest strategies such as selling naked puts, shorting volatility, and buying on the dip stopped working. As you know, shorting volatility worked for years, until it didn’t. I’m also sure more than a few people blew up their accounts selling naked puts. The surprising part is how long these strategies worked without any pullback or correction.

I could write a chapter on what happened last week, and what might happen in the future. First, it’s too early to say what the market will do this week. In the past, after a pullback (we haven’t had a correction for years), the market bounced back. I’ve been talking to investors who are expecting the market to “bounce back.” They could be right. On the other hand, and this is where it will get interesting, the correction could get worse. As traders, we are open to any possibility. That means we go short (buying puts is less risky if you know how to trade options) if the market continues down. Or we will go long if the market bounces back strongly above the 100-day MA and 50-day MA.

The best advice is to follow the oldest advice: Buy low and sell high. The market was at all-time highs and yet, investors were going on margin, buying leveraged ETFs, and buying at the top. I talked to these investors a few weeks ago and they never imagined that the market could go down. And now, they are hopeful the bull market will continue. Like I said, they could be right, but they also could be wrong. I just hope these investors are properly diversified in case a worst case scenario develops.

If you read my blog from January 29, I had received a call from a market technician who told me that the market was at ‘statistically stupid” levels. As it turned out, he was right. Eventually, statistics win out. The idea that we were 3 standard deviations above the 200-day moving average was ridiculous. Reality finally returned to the markets and many investors are feeling the pain.

As I have written for weeks, this is the time to learn about bear markets, corrections, buying put (and call options) and managing volatile markets. There is a good chance that volatility will be here to stay for a while. But then again, I remember thinking that in 2016, and eventually volatility was artificially suppressed and the markets continued higher. This time, however, interest rates are rising, causing havoc in the bond market. It will be interesting to see how the new guy at the Fed handles it. Pay close attention to the bond market and interest rates.

One of my neighbors went to her broker two weeks ago and sold her ETFs and stocks (she kept her mutual funds) right before the 2,000 point drop. The broker tried to discourage her from selling, and told her that “You shouldn’t panic.” She told him what I had once told her: “It’s not panic if you’re the first out the door!”

On one hand, you don’t want to sell everything in a panic because you might miss out on a tremendous rally. On the other hand, you don’t want to be leveraged up to the hilt when the market takes another hit. Everyone has to find their own personal comfort zone. During times of high volatility, like now, many trading strategies do well while buy-and-hold strategies suffer. It’s a lesson that is learned every few years.

Bottom line: This week is very important. We are at a key pivot point that will determine market direction for months or years. In the past, the market recovered from short-term damage. If the market continues to fall, there are more serious problems than we know. If the market continues to fall, it means the bubble is deflating, and that will not be good news for investors who are being told to “not panic” and “the market always comes back.” My other advice: Listen to what the market is telling you. Only the market is right (and everything else is just noise).

Baseball analogy: The bears got a few home runs last week but the bulls are not giving up. Only time will tell if the bears can run up the score or if the bulls can tie the game with a little help from their friends at the Fed.