The Weekly Trader


Feb19

Bullish or Bearish? Week of February 19, 2024

Welcome to my blog! I believe that most beginners should start by investing in index funds, which will be in their core account. I personally like selling covered call options on stocks that I own, providing income. Nevertheless, this blog was written for short-term stock and option traders who want a weekly report on the market using technical analysis.

Note: You can preorder my newest book, Help Your Child Build Wealth (Wiley, November 2024) at Amazon: https://bit.ly/3OGOVmO or Barnes and Noble: https://bit.ly/49x6gGS .

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Short-term trend (DAILY CHART)   BULLISH: Last week, SPX fell from 5026 to 5005, a small 21-point retreat. It could have been a lot worse as all the indexes plunged last Tuesday before roaring back to even the next day. Because the market bounced back so quickly, the bullish uptrend remains intact. Note: Futures are SLIGHTLY LOWER on Monday night.

Long-term trend (WEEKLY CHART) – BULLISH: SPX remains in a strong uptrend even after that one-day selloff. As I've said before, the SPX chart is a thing of beauty (if you're bullish).

MACD (DAILY) = NEUTRAL. MACD is above the zero line but flatlined on the 9-day signal line. No significant signals this week for MACD.

RSI: (S&P 500) = 62.73 (DAILY) SLIGHTLY OVERBOUGHT: Last week, RSI warned us that a selloff was coming, and it arrived last Tuesday. As a result, RSI plunged along with the market, but the selloff only lasted a day. RSI rose from the ashes and the cycle begins again. The lesson: Don't ignore RSI if you are a short-term trader.

Comment: Early last week, RSI reached ridiculously overbought levels, and sure enough, the market plunged. When RSI rises above 70, it's in the danger zone, and last week it was well above 70. The most surprising thing is how quickly the markets recovered. It just proves that machines have taken over the stock market. The algos rushed in to buy the dip.

Even though the market dodged the bullet this time, a correction is coming, but no one knows when. The Magnificent Seven stocks are in the stratosphere right now, and as some pros have pointed out, these stocks are carrying the market. When they reverse, so will the market.

On the other hand, other less known stocks such as those in the manufacturing sector appear to be recovering from a rough 2023.

I've seen this story before but with different stocks: A lot of people are chasing after any stock related to AI, and that means the Magnificent Seven. Those who are late to the party will buy at the very top, just when the Magnificent Seven stocks crumble. No one can predict when this will happen or what will be the trigger. But, it will happen.

Another clue: Not only is the market overbought, but more stocks are faltering. Soon, even the Magnificent Seven won't be able to keep moving higher, and that's when the reversal occurs. Many people buying at the top will get caught. It doesn't mean you should go out and sell everything: Just be aware of the risks.

It's a game of musical chairs, and one day the music stops. It always does.

Over 100,000 Copies Sold

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Understanding Options 2E

(McGraw-Hill, 2nd Edition)

Did you know you can use options to make money every month or every quarter? And that you can use options as insurance, for example, to protect your stock portfolio? And if, on occasion, you wanted to speculate, you could leverage your money to double or triple your profits. It will cost you a lot less than if you bought stocks. And finally, if you like to short stocks, it can be safer to use option strategies than to use the stock market.

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Note: Over 100,000 copies sold.

More Info: Review from Forbes Magazine (#5 on list); Review from Investing.com