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 

My latest MarketWatch column on how stock bubbles burst: http://goo.gl/alw6R1

 

AAII survey (5/6/2015)

27.1% Bullish. 46.1% Neutral. 26.8% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (5/5/2015)

52.5% Bullish.  13.9% 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: 12.86 (on 5/8/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 55.92 (on 5/8/2015)

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 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 above 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 2.15% (on 5/8/2015).

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

 

Analysis: It’s déjà vu all over again. Last week, the market sold off until the jobs number were released (or perhaps it was the British election), but the market gained back all of its losses. This is the second week in a row when the market was saved by a Friday rally. In fact, the indicators haven’t moved much in two weeks. Retail investors are getting more cautious while many in the financial media believe in miracles. Most technical indicators are not giving strong signals so once again, we could go in either direction. The market appears to be topping out but the proof is in the market. The indexes must surpass their all-time highs on strong volume if the bull market is for real. Up to now, we haven’t seen that.

Opinion: Tom McClellan, editor of the popular McClellan Market Report and a market timer, gave out a sell signal from his timing models and seasonal patterns. He believes the selloff will occur from May 19 to May 22. In a week, we’ll know if he’s right.

This market is playing mind games with the bears or anyone who believes we’re in a bubble. It’s easy to get frustrated with the market, especially if you believe a correction or crash is imminent. It’s very tempting to do something instead of just sitting and waiting. But to paraphrase Jesse Livermore before the 1929 crash: “It’s the sitting and waiting that makes the money.” 

Unfortunately, it’s not easy to sit and wait while it appears that other people are making money. Most bears have thrown in the towel or in some cases, went long. I’ve also observed that most investors believe they can get out in time before the next correction. (Good luck with that strategy.)

I believe the market is at a dangerous crossroads. Thanks to the policies of the Fed (QE 1, 2, and 3 and low interest rates), the market has gone up fast and high. Even now, most investors believe the Fed will keep the party going indefinitely. It is hard to sit on the sidelines and refuse to participate. Although the pressure to beat the indexes is intense, the only sane action to take in this environment is to take money off the table. Unfortunately, sanity left this market a long time ago. One day we may look back at these days and shake our heads in disbelief. (Sometimes I feel like I’m in the Matrix.)

Bottom line: Let’s see what the market has in store for us this week. We surpassed Dow 18,000, S&P 2,100, and Nasdaq 5000 thanks to the Friday rally. I will watch closely to see if there is strong support at these price levels. If we break below these levels, it will be another wild 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 

My latest MarketWatch column on how stock bubbles burst: http://goo.gl/alw6R1

 

AAII survey (4/29/2015)

30.8% Bullish. 47.2% Neutral. 22.0% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (4/28/2015)

57.4% Bullish.  13.9% 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: 12.70 (on 5/1/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 54.18 (on 5/1/2015)

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 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 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 2.11% (on 5/1/2015).

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 have had a rough week. 

 

Analysis: The indexes were in trouble most of the week until Friday, when it rallied, erasing the week’s losses. Once again, we’re in a standoff. Buyers are not enthusiastic (as reflected in market internals such as the NYSE Tick), and sellers are still not taking action. Eventually, something has to give. Sentiment remains historically complacent as few believe the market is vulnerable. Market trend is unknown at this time, and although pointing up, there are danger signs. Bottom line: It will be another unpredictable week. No one knows where this market is headed.

Opinion: As expected, the market was bearish all week until it pulled a rabbit out of its hat and recovered on Friday. At this time, it is unknown if it can do a repeat performance, and keep investors in the game. Economic numbers were weak across the world but few believe the Fed will allow this market to retreat for very long.

As I wrote last week, it is unknown where this market is going. I’ve noticed that last week the market began to retreat, until buyers stepped in between 10 a.m. and 11 a.m. ET to prevent a massacre. I wonder how long the buy-on-the-dippers will succeed.

Keep in mind that margin is at all-time highs. I also wonder how long buyers will keep adding to their positions on margin. If it turns against them anytime soon, it will get ugly very fast. And yet, so far the market is holding up at Dow 18,000, S&P 2,100, and Nasdaq 5,000. Can it finally surpass its all-time highs, or retreat from exhaustion? This week we should find out.

Bottom line: It will be another fascinating week as we learn what this market is made of. If it’s the real deal, the bulls will be celebrating. If it’s a bubble based on promises and illusions, then watch out below.

 

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 (4/22/2015)

31.5% Bullish. 45.3% Neutral. 23.2% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (4/21/2015)

52.5% Bullish.  15.2% 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: 12.29 (on 4/24/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 59.49 (on 4/24/2015)

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 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 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 1.92% (on 4/24/2015).

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

 

Analysis: After a strong start, the indexes appeared to struggle all week, although the S&P still managed a 1.75% gain. The trend is up but many technical indicators are warning of overbought conditions. Although the market can still climb higher, in the short-term it is on borrowed time. Sentiment indicators haven’t changed much: Retail investors are more neutral than bullish. The financial media is still bullish and in general, everyone is complacent. Very few see any danger signs, which in itself is a danger sign. 

Opinion: By the numbers, the bulls won the week. If you look deeper, however, the rallies were tepid and unenthusiastic, and the market internals (measured by the NYSE Tick, for example) were weak. It’s hard to convince most investors that the market is on a slippery slope because as long as the indexes go higher, all appears to be well. Dow 18,000, S&P 2100, and Nasdaq 5,000. What could go wrong? 

This is another important week. As I wrote last week, we need to see the indexes fly past these price levels and stay there. Personally, I’d be surprised if the market suddenly bolted higher. In fact, if the market continues to struggle at these price levels, it’s likely there will be a major retreat soon. Buyers are not rushing in at these levels, and yet, investors are not selling. I’d characterize the market as in a standoff. Putting all the indicators and clues together, the edge goes to the bears.

It is going to be a fascinating week. Watch and see how the market handles these elevated price levels. We’ll know soon enough if this is the top of the market, or if there is room to run. The wild card: The Fed will not raise interest rates anytime soon, and they will let everyone know at a most opportune time. 

Bottom line: I see many danger signs, but most investors are oblivious. 

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 (4/15/2015)

32.1% Bullish. 45.1% Neutral. 22.8% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (4/14/2015)

50.5% Bullish.  13.9% 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: 13.89 (on 4/17/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 48.88 (on 4/17/2015)

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 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 slightly 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 1.85% (on 4/17/2015).

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 keep rallying. 

 

Analysis: The indexes seesawed back and forth last week until Friday, when the market sold off over 1% by the end of the day. It was an orderly selloff as most investors still have a bullish bias (although some retail investors say they are getting more cautious). Based on technical indicators, it is too early to say if Friday’s selloff was meaningful. We’ll need to watch what happens this week to see if the short-term downturn continues. The financial media does not see any danger signs, although Greece is in the news along with earnings. It will be interesting to see how the markets react to current events.

Opinion: With Greece looming in the background and earnings announcements about to take center stage, it could be a wild week. Bullish investors are convinced the market can go nowhere but up, so we’ll soon see if they are right.

There is a lot of conflicting data and news this week, so it’s anyone’s guess what will happen. At this writing, the odds favor the bears, but that could change if bad news is ignored. Monday will tell us a lot, and according to the S&P futures, the opening will be slightly positive.

Last week, I suggested that you watch what happens when the Dow hits 18,000 and the S&P hits 2100. As you may have noticed, the indexes crumbled soon after hitting these targets. That was a very negative sign. All we can do now is wait to observe what happens if the indexes try again.

Bottom line: If the market is in the danger zone, as I believe, then it will be a very rough week for the bulls. On the other hand, if the bull market is intact, as most financial pros believe, then we’ll be back at Dow 18,000 and S&P 2100.

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 (4/6/2015): http://goo.gl/85ErSa

 

AAII survey (4/8/2015)

28.7% Bullish. 47.2% Neutral. 32.0% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (4/7/2015)

50.4% Bullish.  14.2% 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: 12.58 (on 4/10/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 57.20 (on 4/10/2015)

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 is above its 50-, 100-, and 200-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 above its zero line but 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 1.95% (on 4/10/2015).

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

 

Analysis: The VIX got frothier but sentiment surveys pulled back a little. The trend is up based on moving averages, and although the market showed topping behavior, it rallied to 2100 on the S&P and over 18,000 on the Dow. We’ve been here before. Perhaps we’ll soon see what this market is really made of. If it’s a strong bull market, it should climb higher. If it’s in the danger zone, it will retreat once again. It’s impossible to predict which way the market will go this week.

Opinion: Although I still believe the market is in the danger zone and that it will end badly, I cannot predict when this will happen. It was interesting to read that many influential and successful investors and traders have been warning of a market correction or crash. I might have been early but it’s good to know that others see many of the same red flags. 

A few who have given recent warnings include legendary hedge fund manager Julian Robertson, former CEO of Pimco Mohamed El-Erian, hedge fund billionaire Paul Tudor Jones, hedge fund manager Andy Redleaf, billionaire investor Carl Icahn, billionaire investor Sam Zell, hedge fund manager Cripsin Odey, and famed money manager Stan Druckenmiller (who has been warning of a financial catastrophe for a while).

Thanks to the Zero Hedge website, we have the fascinating transcript of Druckenmiller’s speech to the Lone Tree Club in North Palm Beach, Florida. Below is the shortened version, but the full transcript appears at the end of the webpage. Druckenmiller is warning of a huge correction, although he is not shorting (in January). Why not? Because he can’t predict when the wheels are going to fall off, but he knows they will.

Here is the shortened transcript (1/18/2015):

http://goo.gl/m8MYgO

It could be two months, a year, or even longer when the markets unravel, and when they do, it will catch most investors by surprise. I personally believe we are closer to a correction than not, but it’s best to watch and wait for stronger signals. Right now, the market is vulnerable to selling pressure but it will take an unknown catalyst to cause most investors to pull the sell lever. At the moment, investors are blissfully making money without a care in the world. As you know from studying market history, that is exactly when you should be most on guard.

I personally sleep very well at night knowing I am not buying into this market at all-time highs. Nevertheless, it’s not easy being on the sidelines while others are making money (especially if you are managing money for impatient clients). 

Bottom line: Let’s see how the indexes perform this week, and if they can surpass their all-time highs. I am looking to see if 2100 holds on the S&P 500.