The Weekly Trader

Here are the most recent market indicators:

S&P 500 one-month trend = Pivot  (Mildly Bearish) The uptrend is still broken, at least temporarily, but that could change if the indexes continue to move higher. 

S&P 500 is below its 50- and 100-day moving averages= Bearish

RSI: (S&P 500) @51.24= Neutral 

Intraday Volatility: Moderate 

Comment: I made a big mistake last week and I hope you learn from it. I entered the market with a “bearish view,” because I “thought” the indexes were going to plunge. They fell for the first half hour on Monday morning, and after that the Dow went up by 900 points in three days! My first mistake was having a preconceived opinion. With that opinion, I started to short the rallies, which didn’t work, so I closed the position with losses. I tried it again on Tuesday, and again I was wrong, so I closed the position again with losses. Although my losses were minimal (because I sold my losers quickly), because of my “view,” I missed out on one of the greatest rallies of the year. I won’t be making that mistake again!

If you are a trader, and you find out a trade isn’t working, you never argue with the tape. You get out with losses and reevaluate. If you’re agile, you can switch sides (it’s hard to do because you must admit you were wrong). But not only do you never argue with the tape, but you never hold a losing position for very long, hoping you will be proved right. Only the market is right, even if it’s not fair or doesn’t make sense.

Last week the algos ran the market obscenely higher Monday to Wednesday on nothing but fumes. I “thought” the market would be volatile because of the election and the Fed, but it was hardly volatile at all. The strong rally didn’t make sense, but it happened. By Wednesday, the market had moved into extremely overbought territory, giving nervous investors a ray of hope from a miserable year. 

As mentioned, the algos ran the market above it’s 200-day moving averages in a stunning 900-point Dow rally. Unfortunately, the SPX is still below it’s 50-day and 100-day moving averages. For the rally to continue, it will have to rise above its 50-day and 100-day MA, which is now resistance. Based on the RSI and other clues, the market could go in either direction this week.

The rising interest rates should be watched as that could be a problem for the stock market moving forward. The FAANG stocks got creamed on Friday, another negative sign. And oil got massacred, which needs to be watched. Because of the Friday selloff, the market is not as overbought as it was on Wednesday. For the bulls, typically there is a Christmas rally near Thanksgiving and Christmas. There is no guarantee that will occur this year, but traditionally the market does move higher near the end of the year. In addition, any money manager who is behind (a lot are this year) will be panic buying to run up the percentages. Obviously, there will be a lot of conflicting forces as we count down to the end of the year.

Bottom line: Keep an open mind this week, a lesson I forgot to heed. Do not get locked into a “point of view.” 

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For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts: www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: www.wolfstreet.com

Here are the most recent market indicators:

S&P 500 one-month trend = Bearish  (The uptrend is broken. Caution is advised). 

S&P 500 is below its 50-day, 100-day, and 200-day moving averages = Bearish

RSI: (S&P 500) @43.64= Neutral 

Intraday Volatility: High 

Comment:  Last week, the bulls needed to bring the indexes above their 200-day moving averages, and they did, at least for a day. It was quite impressive how the Dow went up by 900 points in three days (Tues., Wed., Thurs.). It was an incredible rally but unfortunately, the indexes were unable to stay above their 200-day moving averages.

All week, there was conflicting news from many sources, including from the White House. As a result, there were wild intraday swings. Volatility is a two-edged sword. On one hand, it can bring great profits if you time the trade correctly and get out quickly. On the other hand, you can lose money if your timing is wrong. It’s not easy to trade in this environment, which is why trading small is recommended.

With the election, the post-election, and the Fed meeting this week, it should be another wild and volatile week. Expect a lot of intraday reversals. Day traders will be pleased, but investors are going to feel a lot of heartburn.

My bearish view: When I put all of the clues together, I am entering this week with a bearish view (i.e. short the rallies). In addition to the election and the Fed, I am also concerned by the Apple news. I believe that investors have been shaken but are still too hopeful and unaware of the risks. The charts of the FAANG stocks are weak, and all I hear from investors is “the FAANG stocks will come back.”

In addition, the indexes went up too abnormally high and too abnormally fast with help from the algos. Even with my bearish short-term view, and this is important, the market is always right. Therefore, if the market rises above its 200-day moving averages (perhaps the Fed will say something positive), and if the trend is up, I will switch sides.

Recession Watch: I was at a mall in Fort Lauderdale, and although the mall was crowded, I found out from several store owners that sales were the “worst in 10 years,” as one owner told me. An owner of a candy store told me if sales don’t improve this Christmas, he won’t renew his lease. These are the type of clues that the great investor Peter Lynch looked for, and it could be an early warning sign of problems ahead. Add in the rising interest rates and stories that housing and auto sales are rolling over and you have the makings of a recession. It’s too early to say for sure but keep your ears and eyes open for clues.

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For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts: www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: www.wolfstreet.com

Here are the most recent market indicators:

S&P 500 one-month trend = Bearish  (The uptrend is broken. Caution is advised). 

S&P 500 is below its 50-day, 100-day, and 200-day moving averages = Bearish

RSI: (S&P 500) @30.34 = Oversold (Rallies are possible)

Intraday Volatility: Moderate to High 

Comment:  As I warned last week, this could get ugly real fast and it did. Once the indexes fell below its 200-day moving averages last week, volatility increased along with selling. The technical indicators are awful with one exception. The RSI is oversold, so a strong short-lived rally is likely. Volatility will continue as the bulls and bears fight it out.

Right now, the market is in a correction. However, and this is important, it’s too early to say if this will turn into a bear market. Corrections typically last no more than a month, so it’s possible we’ll have that hoped-for Christmas rally. Unfortunately, the market has been severely damaged, so it will take some time for it to recover. The last two corrections bounced back fairly quickly, and it’s possible it will happen again.

Unfortunately, we could also be heading right into a bear market (20 percent or more decline that can last for a year). If we do, it will get even worse from here, with occasional one-day rallies that gives hope to bullish investors. No one can predict which scenario will play out, but you should be prepared for both.

When there are strong rallies, take the opportunity to sell losers and move to cash. If you are a trader, you will primarily be shorting rallies (with puts) rather than buying on the dip, but you can do both. Corrections and bear markets are difficult to maneuver, so it takes practice and experience. One thing for sure: If we do enter a bear market, it will test the patience of buy and hold indexers who will not sell (at first). And who can blame them? After the last bear market and two corrections, the market bounced back. Since people often rely on the past to predict the future, most investors will sit tight even if a bear market ravages their portfolio.

Perhaps this will be a typical correction and all be well by January. But if it’s not, make plans now so you are not forced to sell at the worst possible time. Shred the losers, evaluate your portfolio, and learn how to survive and thrive in bear markets. One thing I can say with confidence: The great bull market that started in 2009 appears to be faltering as we head into uncharted territory.

Bottom line: Watch this week to see if the bulls can win more than a day, or if any rallies reverse during the day. The bulls desperately need to win this week and bring the indexes back above its 200-day moving averages. We’re all waiting breathlessly to see if they succeed, or not. 

______________________________________________________

For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts: www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: www.wolfstreet.com

Here are the most recent market indicators:

S&P 500 one-month trend = Pivot  (The trend is still broken. Caution is advised). 

S&P 500 is below its 50-day and 100-day moving averages = Bearish

S&P 500 is nearly even with its 200-day moving average = Neutral to Bearish

RSI: (S&P 500) @36.23 = Near oversold (a rally is possible) 

Intraday Volatility: Moderate to High 

Comment:  If you wanted excitement, the place to be was the stock market. After 10 years of relatively low volatility and an uptrend, the market has acted like it’s had a case of indigestion. If you’re an investor who has been used to a relatively calm uptrend for the last ten years, the increased volatility is a new and strange environment. Although the market has experienced short bouts of volatility in the past, volatility is lasting longer, and it’s possible it will be with us for a while until something breaks. 

While many traders are enjoying the volatility (if they are experienced), it’s not an easy environment to trade. For example, last week the SPX had major pullbacks and a huge rally but the SPX ended exactly where it started! Believe me, that is not a healthy sign. When you put it all together, the market has a very bearish tone. In fact, the stock market is in serious trouble right now, and few realize it.

Although it’s possible the market will get through the next few weeks unscathed, it’s unlikely. One strategy that worked last week was shorting the rallies. Nearly all of the intraday rallies failed.

Even with all this negativity, it’s important you do not enter the market with a negative bias. I have learned the hard way that you only look at the facts, ie. what the market is actually doing, and not make big bets in advance of the market direction. You can make a very good living by being a little late to the party (bull or bear). 

Right now, look closely at the 200-day moving average. For the bulls to keep control, they must defend the 200-day moving average, and they will try. But as soon as the 200-day is breached, and SPX or the DOW falls below it for more than a day or two, look out below. 

This week should be a Battle Royale between the bears and the bulls. If you are rusty or inexperienced with bear markets, now is the time to get educated. Start with Jesse Livermore’s books (i.e. Reminisces of a Stock Operator), and read one of my favorites, Jesse Livermore Boy Plunger by Tom Rubython, a biography about Livermore. I learned more from Rubython’s book than almost any other. 

Bottom line: Get out the popcorn as the market made a major pivot two weeks ago. It’s October, investors are nervous but hopeful, and the bears are licking their chops. This could get real ugly real fast so bring your “A” game.

 

 

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For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts: www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: www.wolfstreet.com

Here are the latest market indicators:

S&P 500 one-month trend = Pivot Point  (The uptrend has been temporarily broken. Caution is advised.)

S&P 500 is below its 50-day and 100-day moving averages = Bearish

RSI: (S&P 500) @29.52 = Oversold (rally is possible)

Intraday Volatility: Moderate to Heavy (anything is possible if volatility increases) 

Comment:  Last week I saw some important clues that pointed to a trend change. For example, I correctly identified what is called a “pivot point,” which I said could be a “potential trend change.” Little did I know that it would be that severe. In fact, the Wednesday afternoon plunge took nearly everyone by surprise, including me. (FYI, “pivot point” was coined by Jesse Livermore, and is worth studying). 

There were many clues that we were hitting a short-term top. For example, investors had been bragging how much money they have made in the market. (That’s how I predicted the bitcoin top almost to the day). I was also getting emails and text messages from investor friends bragging how the market “will never go down” or if it does, “it will bounce back quickly, because the market always comes back.” 

The S&P sliced through the 50- and 100-day like it was butter. Right now, it’s a point above its 200-day moving average. If SPX drops below and stays below its 200-day moving average, that would be extremely bearish. In the past, however, the market recovered from these pullbacks and went on to even higher levels. It remains to be seen if it can do that again. Unfortunately for the bulls, interest rates are rising, and that is a huge negative for the stock market. There are other issues as well, but interest rates take center stage for now. 

Moving forward, we need to see if the indexes recover from last week’s short-term disaster. At a minimum, the S&P 500 needs to retake its 100-day and 50-day moving averages, just like it did in February and July. Investors are hoping for the best, while objective market observers know the market could go in either direction. It is still too early to proclaim that the worst is over, even after Friday’s snapback rally. 

Bottom line: If the indexes fail to rise above its moving averages, or if they continue to fall, that would be a huge warning sign. The coming weeks are important as the indexes try to repair the damage from last week.

Note: Here is my latest column on MarketWatch, about how to get started trading options: https://on.mktw.net/2Nx6inI

______________________________________________________

For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts: www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: www.wolfstreet.com