The Weekly Trader

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

 

AAII survey (6/17/2015)

25.4% Bullish. 40.3% Neutral. 34.3% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (6/16/2015)

45.5% Bullish.  16.5% Bearish.

Bearish: If sentiment is over 60% bullish. (Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 13.96 (on 6/19/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 52.23 (on 6/19/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is slightly above its 50-day moving average, and pointing down

Bearish (Short-term Downtrend): Index crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is slightly above its zero line and even with its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.27% (on 6/19/2015).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). Note: Bonds had a significant rally last week. 

 

Analysis: According to the indicators and clues (and common sense), the market will be unpredictable this week. Unfortunately, the indicators can’t tell us how volatile it will get. Trumping the indicators is the Greek drama, and judging by the S&P futures (Sunday night), investors believe there will be a final agreement. As I mentioned last week, observe how the bulls and bears fight for Dow 18,000 and S&P 2100. By the end of the week, we should know who won.

Opinion: Last week, the bears had the upper hand, and then Janet Yellen appeared, and said nothing surprising, but the indexes skyrocketed higher. And here we are at Dow 18000 and S&P 2100. Once again, the short-term trend is sideways. 

As mentioned above, the highlight of the week will be Greece, and the outcome is unknown. Will the ECB and Greece kick the can down the road, or attempt to solve Greek’s debt problem? No one knows the answer although there are “hopeful signs.” Most important is the market’s reaction. The probabilities are good that it will be a volatile week.

The longer the Fed plays “hot potato” with Mr. Market, the longer they keep interest rates low, the higher the debt goes, the more dangerous the market becomes. How will the Fed respond to a 10 or 15 percent correction? You know the answer: they will buy even more bonds. Yes, it gets curiouser and curiouser.

It’s not easy to stay sane in a mixed-up world. It might be weeks, months, or longer than you ever imagined, but this party will end. Few appear to be prepared for interest rates going higher and a market going lower, but that day is coming. Wise investors are preparing for the inevitable smash, although it might occur in waves rather than at one time.

I’ll leave you with a Jesse Livermore quote, a saying true now as it was 100 years ago: He wrote: “Stocks are manipulated to the highest point possible and then sold to the public on the way down.”

Bottom line: Don’t forget that human nature never changes. By the way, this should be an interesting week. 

 

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

 

AAII survey (6/10/2015)

20.0% Bullish. 47.4% Neutral. 32.6% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (6/9/2015)

47.4% Bullish.  16.5% Bearish.

Bearish: If sentiment is over 60% bullish. (Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 13.78 (on 6/12/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 46.16 (on 6/12/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is below its 50-day moving average (but above its 100- and 200-day MA), and pointing down

Bearish (Short-term Downtrend): Index crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line but below its red 9-day signal line and pointing down. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.38% (on 6/12/2015).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).

 

Analysis: The indicators are nearly identical to last week. AAII investors are still overwhelmingly neutral, a very unusual reading. In addition, investors appear more bearish (perhaps because they are reading the news). Nevertheless, financial writers and most pros are still overwhelmingly bullish, so sentiment hasn’t changed. On the technical side, the indexes are below their 50-day week moving averages. In fact, the bulls and bears are fighting for Dow 18,000 and S&P 2,100. At this writing, the bears are temporarily winning, but that could change in a heartbeat.

Opinion: It was quite a roller coaster ride last week, but in slow motion. The bears were in firm control most of the week until there were “hopeful signs” the Greek drama was going to end; the Dow skyrocked up 250 points on the rumor. Kapow! The next day the Dow fell by 140 points as it was another false alarm. As of Sunday night, things look bleak. The drama will play out all week so anything is possible.

In addition, Janet Yellen is speaking this week so we will hear a half-dozen reasons why the Fed wants to raise interest rates but won’t at this time. I’d be surprised if they raised rates this year. Even the managing director of the IMF, Christine Lagarde, told Janet not to raise rates, so there is political cover.

And yet, bond yields are rising in spite of the Fed. When you look at the bigger picture, there is debt as far as the eye can see. If you are a saver, you’ve been punished for years while debtors are rewarded. In the future, expect higher interest rates. It’s true the Fed will do everything in their power to keep interest rates low “for a considerable time” but that can only work for so long (ten years seems to be long enough!). Eventually, the world’s central banks and financial markets will have to face reality, and it won’t be pretty.

Although no one can time the next correction or crash, or even predict when interest rates will rise or how high they will go, one thing is certain: the current economic situation cannot continue indefinitely.

As for me, I am focused on the clues and indicators. Fact: The indexes were unable to stay above their moving averages last week, which is a warning sign. The odds are good that a severe disruption is coming, but ignore the talking heads and focus on what the market tells you. Watch the market leaders to see if they start to falter. I detect a bit of nervousness creeping into the markets but most believe in the power of the central banks to keep the market levitated.

Bottom line: This is a very, very dangerous market. Anything is possible this week. Expect volatility as confused investors search for sunshine while thunderstorms lurk in the background. 

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

 

AAII survey (6/3/2015)

27.3% Bullish. 48.0% Neutral. 24.6% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (6/2/2015)

51.5% Bullish.  15.8% Bearish.

Bearish: If sentiment is over 60% bullish. (Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 14.21 (on 6/5/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 43.49 (on 6/5/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is below its 50-day moving average (but above its 100- and 200-day MA), and pointing down

Bearish (Short-term Downtrend): Index crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line but below its red 9-day signal line and pointing down. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.40% (on 6/5/2015).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). Note: Ouch! Bonds got smacked last week. 

 

Analysis: It will take an unexpected disaster to shake the confidence of the financial media, who are overwhelmingly bullish along with most on Wall Street. Complacency describes how most pros feel, which has helped to push NYSE margin debt to all-time highs. On the other hand, many retail investors are neutral (and unsure of market direction). Sideways markets are confusing, and that is why we are getting mixed signals. On the technical side, the major indexes fell below their 50-day moving averages last week. This is significant but it might be temporary. Observe whether the indexes can eventually claw their way back higher (with the Fed’s help, of course).

Opinion: Last week I said we could be in for a wild week and we were, but it was mostly in the bond market. Bonds got smashed last week while stocks retreated only a little.

As a result of the world’s central banks actions, interest rates have been kept artificially low. As you may know, in some countries interest rates are negative. One day we will look back at these times and wonder how it got so ridiculous.

The amazing part is that a majority of people believes this is “normal” and that low interest rates and high stock markets will continue indefinitely. I have news for people who don’t study history: One day the financial fantasy will end, and it won’t be pretty. Unfortunately, no one can predict when reality will return to the market, but it’s going to happen. 

It’s not easy being a realist today. Savers are punished while debtors are rewarded. The more you borrow and the more margin you accumulate, the bigger your reward. This works beautifully in a bull market but when the party ends, it gets ugly fast. It is not easy to stay on the sidelines while other people are making money, but sometimes that is the most prudent action.

If the market plunges, it is guaranteed the Fed will not raise interest rates no matter what the data says. The world has become so addicted to low interest rates that any move to raise rates will be upsetting, to put it mildly. Add in the Greek drama, world conflicts, and confusing economic data and you have a very dangerous market. Nevertheless, most bulls (which is the majority) believe in the power of the Fed to keep the party going no matter how bad things get.

Bottom line: This is another important week. The market could go in either direction although it’s leaning south. The dangers are increasing but few seem to be care. This is the time to be alert.

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

My latest MarketWatch column (June 1) is here: http://goo.gl/Tt7684

 

AAII survey (5/27/2015)

27.0% Bullish. 47.9% Neutral. 25.1% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (5/26/2015)

48.5% Bullish.  14.9% Bearish.

Bearish: If sentiment is over 60% bullish. (Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 13.84 (on 5/29/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 48.90 (on 5/29/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is above its 50-, 100, and 200-day moving averages and pointing down

Bearish (Short-term Downtrend): Index crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line but slightly below its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.10% (on 5/29/2015).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). 

 

Analysis: Once again, the sentiment indicators haven’t budged. Complacency is rampant among most pros while retail investors are neutral. On the technical side, although the indexes are above their 50-day moving averages, it’s pointing down. We will learn this week if Friday’s late day selloff was significant (likely) or the result of the Russell 1000, 2000, and 3000 annual rebalancing (unlikely). Even more interesting, there was a rash of bad news last week: For starters, Q1 GDP was revised to a drop of -0.7%, i.e. in contraction territory. In addition, the University of Michigan Consumer Sentiment slumped to a six-month low of 90.7 from 95.9 in April, a major disappointment. Finally, the Chicago PMI plunged to a 6-month low of 46.2 vs an April reading of 52.3. Analysts expected a reading of 53.0. The only good news for the bulls is that the market didn’t retreat more on these numbers.

Opinion: The spinners were hard at work on the financial programs promising that next month will be better. Perhaps they are right, but objective investors must take notice. 

The market rises on hope and falls on fear. Don’t forget that investors are slow to sell as long as there is hope that the market (or their stock) will rise. If investors are afraid, however, they will sell quickly. Right now, there is little fear in the market, but that could change quickly, one of the reasons you need to be on guard. 

It is not that useful to try and figure out “why” the market goes up and down each day. Unfortunately, that is exactly what most in the financial media focuses on (along with an endless string of predictions). Instead of focusing on why the market moved, concentrate on what is actually happening.

The facts are that the market has been in a sideways pattern for months. Because the indexes have been unable to break out of this pattern, the market could go in either direction. As long as investors are hopeful that the economy will get better, that Greece will get rescued, that the Fed won’t raise interest rates, then investors won’t sell. For months, buying volume has disappeared, but few are selling. 

However, if investors start to doubt that the economy will improve, or that the Fed has everything under control, or that the Greece debt problem will be solved, then investor hopes will be dashed. That’s when you will see fear enter the market for the first time in years.

I do not know when fear will enter the market, but I do know it will happen eventually. And when it happens, the market will plunge quickly as institutions and retail investors cut their losses. By the way, margin debt on the NYSE has hit a new record high ( http://goo.gl/XDzmCo ). Margin debt is a huge red flag and it’s been climbing for years.

Bottom line: Based on the disappointing economic numbers, extreme margin debt, world economic problems, and extreme complacency, the odds are good this sideways market will break down. It may be this week or in a few months, but unless buying volume increases, this market is in danger. This week is extremely important as we may finally find out the truth. Hold onto your seats; it could be another wild ride. 

 

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

 

AAII survey (5/20/2015)

25.2% Bullish. 49.8% Neutral. 25.0% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (5/19/2015)

50.6% Bullish.  15.8% Bearish.

Bearish: If sentiment is over 60% bullish. (Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 12.13 (on 5/22/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 54.89 (on 5/22/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is above its 50-, 100, and 200-day moving averages and pointing down

Bearish (Short-term Downtrend): Index crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line and above its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.22% (on 5/22/2015).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). 

 

Analysis: Once again, the indicators are giving us mixed signals. As you can see from the AAII survey above, retail investors are overwhelmingly neutral (by the way, that is the highest neutral signal in a dozen years). On the other hand, financial professionals are overwhelmingly bullish. Few pros seem to believe the market will go down, and they are putting their client’s money where their mouths are. Fortunately for the pros, the short-term trend is still up although the market is in a sideways pattern. With a sideways market, it could break out higher or plunge lower, and no one can predict which way. Based on the indicators, it is suggested you protect asserts and reduce risk (always good advice but especially now).

Opinion: As mentioned above, the market is going sideways. Although the market is in a short-term uptrend, looks can be deceiving. For example, a number of world events could threaten the markets. Take your pick, starting with Greece. Also, Janet is hoping the economic data improves so she can justify raising rates. She may not get her wish. Most pros are all in while cautious retail investors are sitting still. Unlike in past markets, there isn’t a lot of enthusiasm for this market, especially as it climbs higher.

This is a confused sideways market that could go in either direction. The Fed is ready to prevent a bloodbath with words or delaying tactics.  If the market breaks out higher, the bull market continues until it exhausts itself. If the market breaks lower, however, nervous investors might hit the sell button.

Bottom line: Bad breaking news could send this market lower so be alert. One of these days the market will take a strong stand in either direction. Meanwhile, be patient.