Here are the latest technical and sentiment indicators:
Technical Indicators (daily chart)
S&P 500 is slightly above its 50-day MA = Neutral
MACD (S&P 500; 19,39,9) is above its zero line but pointing down = Neutral
MACD (S&P 500; 19,39,9) is below its signal line = Bearish
S&P 500 support @ 2400
S&P 500 resistance @ 2450
Sentiment Indicators (+RSI)
II survey: (July 4): 52.5% Bulls; 18.8% Bears = Bearish
AAII survey: (July 5): 29.6% Bulls; 29.9% Bears = Neutral
VIX: @ 11.19 = Bearish
RSI: (S&P 500) @ 50.24 = Neutral
Comment: One book I read every year (besides the Jesse Livermore books) is “How I Made $2,000,000 in the Stock Market” by Nicolas Darvas. Although written in the 1950’s, Darvas’ ideas are still valid. He created a “box theory” that works very well during bull markets, and gives a warning when a bear market is near. The first warning signal came last week. After the S&P 500 hit an all-time high of 2,453 a few weeks ago, it was unable to move any higher. Last week, the S&P moved into a lower “box,” which is not a good sign. To be more specific, if the FANG stocks keep moving into lower boxes, that would be a warning sign. Keep in mind that Darvas only went long. In a bear market, he would move to the sidelines in cash until it was over.
Another warning came from respected bond manager Jeffrey Gundlach, who recently said that the Fed will raise interest rates again. Gundlach suggests that stock investors pay close attention. He has previously warned that stocks may have a summer swoon.
Bottom line: Watch this coming week closely to see if the S&P 500 can retake 2450. If it struggles to move much higher, then caution is strongly advised. After 8 years of a bull market, with the indexes and margin at all time highs in a low volatility environment, it wouldn’t be surprising if the market cracked, and soon. We will get more clues this week. (Note that the technical indicators turned from bullish to neutral, which is another clue.)