The Long-Term 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 and trend, 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 (7/8/2015)

27.9% Bullish. 42.9% Neutral. 29.2% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (7/7/2015)

44.8% Bullish.  15.6% 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: 16.83 (on 7/10/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 46.97 (on 7/10/2015)

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 500 is below its 50- and 100-day moving averages, and pointing up

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 below its zero line and 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 2.42% (on 7/10/2015).

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

 

Analysis: As expected, volatility returned to the market last week but we ended Friday with a strong rally. Sentiment remained nearly the same: Retail investors are neutral while most financial professionals and writers are bullish. On the technical side, the S&P 500 and other indexes are below their 50- and 100-day moving averages. It was even below its 200-day for two days last week. MACD also triggered a sell signal, one of the first in years. These signals should not be ignored. It tells us that the market has gotten even more dangerous.

Opinion: As noted above, the market has taken a turn for the worse according to the indicators. We were in a sideways market for over six months, and now the market is leaning downward. Yes, news events could send the indexes above their moving averages again, but perhaps only temporarily.

I read the bull case over the weekend (i.e. zacks.com), which is that although the market has gone up 200 percent since 2009, it is still a bull market because a.) There is no evidence of a recession, and b.) the bubble hasn’t popped yet. The problem with this view is that by the time the bubble has popped, you may have already lost 20 percent or more. Same with a recession: By the time it’s obvious to everyone, stocks have already taken a huge hit.

Nevertheless, one of the most important attributes of a successful investor or trader is patience. Because the market is taking its time to pivot, many investors are losing patience. Most bears have lost their confidence after getting steamrolled by a bull market and an accommodative Fed. Until very recently, there were almost no bears to be found.

The bulls, on the other had, still feel invincible. Many believe that the central banks will minimize any potential damage. Unfortunately for the bulls, the charts of a number of leading stocks are breaking down. Look at the chart for Intel, for example. Awful. While most people are distracted by the strength of the Dow, beneath the surface dozens of stocks are falling apart. The last to fall are the market leaders such as Apple, Goldman Sachs, Tesla, to name a few. When the leaders start to fall, then it will be hard for even the Fed to put the market back together again.

What happened in China was fascinating. As the market crashed, the Chinese central bank did everything possible to prevent further selling, including going after short-sellers, loosening margin requirements, and suspending trading on 50 percent of the stocks in the index for six months. The actions appeared to work, at least temporarily. It goes to show that when investors start to panic, even the central bank can’t stop it (unless you suspend trading or make short selling illegal).

In the short-term, the market appears to be reacting to news from Greece and China. But if you keep your eye on the bigger picture, the market seems to be breaking down. It has happened so subtly that few see it, or want to see it. This is another important week as we’ll see if the market can make another attempt to rally.

Although shellshocked bears have disappeared in recent years, it might be time to wake up from a deep slumber. Although it’s too early to say this is a bear market, the odds are good that one is developing. It’s true that a majority of investors do not believe the bull market is over, which will provide many profitable opportunities for short-sellers in the future.

Bottom line: This is the time to observe whether the uptrend is ending. Although I am leaning more towards the bear side than before, I will let the market have the final word. If this market is in trouble, there will be noticeable signals and signs in the coming weeks and months. Be ready: This could be another volatile 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 and trend, 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 interview with investor and bestselling author Jim Rogers: Part 1: http://goo.gl/q0KRP and Part 2: http://goo.gl/3OZq39

 

AAII survey (7/1/2015)

22.6% Bullish. 42.83% Neutral. 35.1% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (6/30/2015)

49.5% Bullish.  15.4% 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: 16.79 (on 7/3/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 42.96 (on 7/3/2015)

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 500 is below its 50- and 100-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 below its zero line and 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 2.39% (on 7/3/2015).

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

 

Analysis: Retail investors lost some of their bullish enthusiasm last week but financial writers and most on Wall Street were overwhelmingly bullish. It will be interesting to see if this week dampens their bullish bias. On the technical side, sell signals were triggered as the indexes fell below technical levels. We will need to see if the indexes remain below their moving averages. It’s still too early to say for sure, but the odds are good the sideways trend is ending (which may lead to a downtrend). Bottom line: You know this is going to be a wild week, which I will discuss below.

Opinion: Get ready for a roller coaster ride. There are two main stories that are converging on Sunday night. First, we have the Greek drama that will play out for weeks or longer. Investors hate the unknown, which is why Greece will cause them heartburn. Also, the central banks aren’t sure how to react, or how bad it could get. All anyone can do is sit back and observe. Many investors are fleeing to bonds for safety, and at the moment, the Euro is getting crushed. Day traders may have fun this week but everyone else will get whiplash.

The second big story is China’s stock market, which lost 30 percent in two weeks (after a 120 percent rise in one year). The Chinese government has taken a number of unprecedented steps to contain the damage, including suspending short selling, encouraging or demanding that brokerage firms buy stocks, loosening margin, discouraging selling, and cutting interest rates. As Jim Rogers told me, bubbles are deliciously fun on the way up, but awful when they pop.

On Sunday night, the Chinese market opened up 8.5 percent higher, but then was up only 3 percent within minutes. As investors will learn the hard way, no one, not even central bankers, are bigger than the market. Once fear takes hold of investors, they will panic sell. One Chinese investor said that all he wants “is to get back to even.” Don’t we all! It’s possible that the Chinese stock market will be a bigger story than Greece in the coming days. 

At this time, it’s unknown how China and Greece will affect the U.S. market. The talking heads will come out and say it will have little or no effect on the U.S. market (however, the Dow futures are down about 200 points, but that is meaningless until the market opens). I do know from experience that China and Greece are red flags that must be heeded.

The world’s central banks are likely putting together new rescue packages in case world markets plunge in unison. Perhaps they can keep investors calm with words only. Last week I told you that Wall Street needs a calm market with an upward bias. Right now, they have a volatile market with a downward bias. If things get out of control, the Fed will step in with a new program. That is why it is impossible to predict which way the markets will end this week.

In my opinion, and based on the indicators, the probabilities strongly favor the bear side. However, because of the influence of the central banks, it’s still too early to go heavily short. As I’ve repeatedly warned, this is the kind of environment when cash is your friend (along with put options for protection or speculation). 

Bottom line: This could be the start of a number of unpredictable, volatile, and wild days. Complacent investors are opening their eyes for the first time in years. 

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 interview with investor and bestselling author Jim Rogers: Part 1: http://goo.gl/q0KRP and Part 2: http://goo.gl/3OZq39

 

AAII survey (6/24/2015)

35.6% Bullish. 42.8% Neutral. 21.7% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (6/23/2015)

51.6% Bullish.  15.4% 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: 14.19 (on 6/26/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 48.18 (on 6/26/2015)

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, 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 below 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 2.48% (on 6/26/2015).

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 got slammed again last week. 

 

Analysis: Last week, bullish sentiment rose slightly among retail investors and financial professionals. On the technical side, the major indexes fell slightly below their 50-day moving averages. Because of the Greek debacle, the Dow futures on Sunday night are down over 200 points and technical levels will be broken at the open. The Fed may attempt to come to the rescue if the markets plunge by too much, which will set up an interesting battle. Watch the VIX spike on Monday. Bottom line: It will be a very wild week and anything is possible. 

Opinion: In my interview with Jim Rogers (link at top of page), he told me that if the market starts to unravel, Wall Street will be screaming for the Fed to “do something,” and the Fed will arrive on a white horse and “attempt to save Western civilization.” He said the Fed will come up with a new program (not named QE) that will allow them to buy more bonds. According to Rogers, at first it will work, but then it will fail spectacularly.

On Monday, the market will retreat at the open, and then it will get interesting. The talking heads will appear to keep investors calm. You will hear this is a buying opportunity, that what is happening in Greece will not affect the U.S. market., that the Fed has everything under control (if the market falls by enough, the Fed will appear, too), and not to panic or sell.

The Fed (and Wall Street) needs a calm, low-volatile market environment with little fluctuations or disruptions. That keeps investors invested, calm, and worry-free. Unfortunately, the Fed has worked overtime to artificially reduce volatility using QE and low interest rates, which worked like a charm for many years. The problem is, it’s artificial stimulation. The other problem is that when you get an outside black swan event such as Greece, it disrupts the algo programs. That is what is happening now. Added to the uncertainty, the Chinese market has fallen nearly 20% in the last two weeks, the most since 1996.

It’s guaranteed that the world’s central banks are discussing how to reduce volatility and prevent a panic. To do that, they must talk up the market or initiate another program to instill confidence. It’s a dangerous game. We’re in uncharted territory.

No one can predict what will happen this week. It will be rough for the bulls early on but perhaps the Fed can prevent a catastrophe. However, and this is important, what is happening in Greece could cause disruptions in other markets (i.e. currencies, bonds, commodities). It is unknown what lies ahead, but as I’ve repeatedly said, this is a dangerous market, and it’s just getting started.

Bottom line: Be very, very careful whether bullish or bearish. Rumors, false hope, and problems we don’t even know about will whipsaw this market. (There is also the chance the Greek government will give into the creditor’s demands.) In other words, be prepared for any scenario. 

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.