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 just 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 using options to limit losses): http://goo.gl/BNuZRJ

 

AAII survey (3/4/2015)

39.8% Bullish. 23.4% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (3/3/2015)

58.7% Bullish.  14.1% 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: 15.20 (on 3/6/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 45.66 (on 3/6/2015)

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 is pointing down

Bearish (Short-term Downtrend): 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 2.24% (on 3/6/2015)

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

 

Analysis: Last week, sentiment surveys show that investors, especially many pros, believe the bull market will continue. The stronger the sentiment, the more bearish the result. (Although sentiment is high, it’s still not as extreme as 1999.) When we started the week, the market could have gone in either direction.  However, by Friday, the market trend had ended (at least in the short term). In fact, the indexes broke below a number of key technical levels, which caught the interest of technicians. This week we will see if the uptrend has ended or if we witnessed another false reversal. The odds favor the bears this week but that could change in an instant if investors believe all is well.

Opinion: It was a fascinating week, and this week should be just as interesting. The market was at a crossroads, seesawing in both directions until Friday. That is when the indexes broke below key technical levels and headed straight down. Nevertheless, the market is above its 50-day moving average and holding on for dear life. 

We’ve seen this story before. Just when the market is about to fall into the abyss, someone from the Fed or elsewhere makes an encouraging comment and the market reverses direction. It could happen again, which is why it’s best to take a wait and see approach. A few bears (those who are left) are dipping their toe in the water with certain overvalued stocks, but in general many traders are waiting to see if this is another head fake or the real deal. We should know fairly soon if this pullback has legs.

No matter what the market does, since it’s at all-time highs, wise investors are taking this opportunity to take money off the table. In my opinion, there is nothing wrong with holding cash in a dangerous market. Although I can’t predict what the market will do in the future, I can tell you this is one of the most dangerous markets I’ve seen in years.

Many blindly bullish investors don’t recognize the warning signs and are all in. After all, the bulls have had their way for years, so it’s understandable they believe this is just another minor pullback on the way to Dow 20,000. I’m not convinced, which is why I remain cautious. I’ve experienced several corrections and they happen quickly and usually without warning. The odds are good another one is coming.

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 just 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 (2/25/2015)

45.4% Bullish. 20.3% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (2/24/2015)

59.5% Bullish.  14.1% Bearish

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

Bullish: If sentiment is over 60% bearish.

 

VIX: 13.34 (on 2/27/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 60.27 (on 2/27/2015)

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 is pointing sideways. 

Bearish (Short-term Downtrend): 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 2.00% (on 2/27/2015)

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

 

Analysis: According to the indicators, the trend is still up although there was a slight pullback on Friday. Because of the uptrend and encouraging words from the Fed (they’ll delay raising interest rates as long as possible), investors are becoming more bullish. Most pros are true believers now, which has rubbed off on the retail crowd. Many investors really believe this market will never go down, and so far, they have been right. In summary, we have a rising market with rising investor exuberance. If you look behind the curtain, however, there are cracks (i.e. negative money flow, reduced volume, extreme valuations, and poor earnings). Nevertheless, the bulls won February. Everyone wants to know if the indexes can do a repeat performance.

Opinion: Although the indexes appear to be topping out, and could be reaching bubble territory, the herd is not selling. Until there is a reason to sell, the market will continue its tap dance at the top.

As expected, the market went higher on Janet’s testimony, but there was little volatility (to my surprise). The market seems sluggish on the rallies as well as on the pullbacks. It’s almost as if the heart of the market has been ripped out. Traders and investors go through the motions but there is little volume. Nevertheless, the market slowly grinds higher.

If you are cautiously bearish, it’s frustrating to watch the market go higher, sometimes on bad news. Many long-time bears have thrown in the towel recently, and it’s understandable. Even with financial turmoil across the world, and less than spectacular earnings, the market goes higher. Even minor pullbacks are met with a wave of algo buying. It’s not surprising that many bears have given up.

As for me, patience is the only way to win. Taking too strong a position on either side could cause financial damage. Whether you are long or short, you need to cut losses or lock in gains, and be sure you are not overexposed. Although no one knows the catalyst, one day this market will have a severe correction. By being cautious at these elevated levels, you can avoid losing money unnecessarily.

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 just 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 (2/18/2015)

47.0% Bullish. 17.9% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (2/17/2015)

56.6% Bullish.  14.1% 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: 14.30 (on 2/20/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 64.07 (on 2/20/2015)

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 is pointing up

Bearish (Short-term Downtrend): 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 2.13% (on 2/20/2015)

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 signals are almost identical to last week except sentiment surveys are close to generating a sell signal. The VIX is in the basement again (bearish signal), and RSI is nearly overbought. On the other hand, the trend is up as the indexes make all-time highs. If you are strictly a trend-follower, more than likely, you are still long. The wild card is Janet Yellen, who is speaking this week. Based on past performances, the market will attempt to rally on her words. More than likely, she will attempt to let the market know that raising interest rates is not a high priority at this time. Bottom line: There are many mixed signals.

Opinion: As mentioned above, there are many conflicting forces at hand (both bullish and bearish) so its impossible to predict which way the market will go.

This should be a volatile week as Janet Yellen testifies on Tues. and Wed. and the market attempts to keep the bull party going. I still believe the major indexes are topping out, which is why I’m primarily on the sidelines watching to see if the current rally fails.

Because of the Fed’s power, few people believe the market will retreat this week. In the past, the Fed has managed to rally the market on little or no news. We’ll be watching if the same pattern plays out. If it does, the rally continues. If it doesn’t, traders will take notice. Speaking of trading, volatility should return to the indexes this week, so be prepared.

Bottom line: There are a lot of conflicting news events and earnings reports intersecting with Yellen’s testimony. It is anyone’s guess which way the market will go. The technical indicators are primarily leaning to the bull side but with a number of danger signs: For example, we have a sideways market that hasn’t yet broken out of its narrow range. Oil is plunging again, which may affect the market. Volume continues to be anemic, and Greece and Ukraine are still in the news. Patience will be needed this week as we see what Mr. Market has in store for us.

 

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 just 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 

Here is my latest MarketWatch columnhttp://goo.gl/eFQq3J

 

AAII survey (2/11/2015)

40.0% Bullish. 20.3% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (2/10/2015)

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: 14.59 (on 2/13/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 61.70 (on 2/13/2015)

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 is pointing up. 

Bearish (Short-term Downtrend): 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 2.02% (on 2/13/2015)

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

 

Analysis: If you look strictly at the market indicators, the trend is up. However, if you look a little deeper at not just at basic indicators but market breadth, valuations, and money flow, you see conflicting signals. Sentiment is not at extremes but that will change if the market gets extreme. Bottom line: The indicators are telling us the market could go either way this week, although the trend is positive.

Opinion: Last week surprised me as I thought the market was close to topping out and running out of gas. Although the indexes weren’t moving on huge strength, they also didn’t plunge. So here we are again at Dow 18,000 and S&P 2,000. If this is a true rally, then the indexes will climb higher on strong volume. Let’s see if that happens.

It is impossible to predict what the market will do during this shortened week. The futures are down Monday night, perhaps leading to an early retreat. The Greek talks didn’t work out so well, and they are still fighting in Ukraine. On the plus side, the market keeps going up, ignoring bad news.

Bottom line: Be prepared for anything. It’s possible that international conflicts will negatively affect the market this week. However, the market might surprise to the upside. Sit back and watch because it could go either way. Don’t forget that Janet Yellen speaks next 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 just 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 (2/4/2015)

35.5% Bullish. 32.4% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (2/3/2015)

49.0% Bullish.  16.3% 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: 17.29 (on 2/6/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 54.04 (on 2/6/2015)

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 is pointing down

Bearish (Short-term Downtrend): 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 on 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 1.94% (on 2/6/2015)

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). Big spike in yield this week (largest weekly gain since 2013). Is this the beginning of a new trend? We shall soon know. 

 

Analysis: When I look at the indicators I follow, I don’t see a lot of extremes, which means the market could go either way. I also follow the NYSE Cumulative Tick, which is flashing a warning signal. It’s interesting that retail investors have lost some of their exuberance, while a majority of professionals are still bullish. Last week, the indexes recovered from the abyss and rallied near their old highs. We will see if the latest rally is the real deal or another dead cat bounce.

Opinion: I have noticed that in the past when the indicators I follow don’t give a clear signal, it’s a danger sign. The market rallied strongly from a terrible January. If the rally was accompanied by stronger volume, I might be more impressed. Based on the indicators and market internals, however, this rally seems about as real as a three dollar bill. I could be wrong, but if I’m not, then be very careful this week.

Last week I expected a rally, but I was surprised that it continued for longer than a few days. Based on past history and the indicators, I would not be surprised to see a strong pullback this week. This is not a prediction but the odds favor a retreat.

No matter what the market does, we’re still in dangerous territory and have been for a long time. Investors remain complacent, and few see any danger signs (thanks to the Fed’s policies). That in itself is a danger sign. 

If you’ve been following my blog for the last few months, you know how suspicious I’ve become of this rally. From Dec. 29 to Feb. 6, the market has gone nowhere. A churning market is not a healthy market, so beware. A market going in circles needs to break out of its sideways trend or it will go down. 

What to look for: Look to see if the indexes fall below their moving averages again.