The Weekly Trader

MY TWO NEWEST BOOKS WERE RECENTLY RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – HIGHER. There was another spectacular rally last week (four weeks in a row), from SPX 4145 all the way to 4280, a 135-point rise. It surprised a lot of traders, including many professionals. As a result, the short-term trend has shifted to strongly bullish. Sunday night futures are flat to slightly lower, but that could change in the morning.

Long-term trend (WEEKLY CHART) – HIGHER. On the weekly, SPX is making a play for its 50-week moving average, and if successful, we will have to re-evaluate whether this is still a bear market.

MACD (WEEKLY) = MIXED . The WEEKLY MACD is well above the 9-day signal line but is still below the zero line. Mixed Signals. 

RSI: (S&P 500) @71.67 (DAILY) EXTREMELY OVERBOUGHT.  There is a price to be paid for a months-long spectacular rally, and that is RSI. It is telling us that SPX is extremely overbought in the short term (RSI above 70). RSI has been remarkably accurate in the past for identifying overbought conditions and future selloffs. This is a warning sign.

Daily Intraday Volatility (VIX) = 19.53= COMPLACENT: The VIX is telling us that option buyers are not worried about a selloff, which is when you should be worried!

Comment: The last month has been amazingly bullish for the market, and especially for SPX. I wish I could say that all is well on Wall Street but I have learned the hard way to read the clues, and RSI is giving us a strong one. RSI is saying the market is extremely overbought and a reversal is likely, although no one can say when.

Bearish analysts are saying this rally is a “dead cat bounce,” i.e., a bear market bounce. On the other hand, bullish analysts are saying this is a “new bull market.” It’s too early to say who is right, so step right up and place your bets. It could go either way this week.

Some large retailers such as Target, WalMart, and Home Deport are reporting earnings this week. Their results should influence the market, at least for that day.

Bottom line: It’s too early to say whether we are still in a bear market or if a new bull market has evolved. As mentioned earlier, RSI is flashing a warning sign.

MY TWO NEWEST BOOKS WERE RECENTLY RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – FLAT. After a spectacular two-week rally, SPX stalled last week, rising from 4131 to only 4145, a mild 14-point rally. The jobs report was excellent last week but another rate hike is coming next month from the Federal Reserve (or so they are hinting). Nevertheless, SPX is still below its 200-day MA, and as long as it remains below, be cautious. Note: Futures are slightly lower on Sunday night (but that could change in the morning). 

Long-term trend (WEEKLY CHART) – POSITIVE. On the weekly, SPX is still above its 200-week MA (but below its 50-week and even with its 100-week), a mildly positive long-term development.

MACD (WEEKLY) = MIXED . The WEEKLY MACD rose above the 9-day signal line but is still below the zero line. Mixed Signals. 

RSI: (S&P 500) @64.48 (DAILY) SLIGHTLY OVERBOUGHT.  RSI is still overbought but not at extreme levels. 

Daily Intraday Volatility (VIX) = 21.15= COMPLACENT: The VIX is still low, which reflects the no-fear, What, Me Worry? market environment. 

Comment: After a three-week rally, the SPX is due for a rest, and perhaps a pullback. Even with the positive jobs numbers (it was a shocker to the upside), the rising interest rate environment “should” put a damper on stocks over the next month. In reality, no one knows how the market will react to the news.

If you’re a contrarian trader, you will either be in cash or looking to trade against the stock market (with put options, hedges, or inverse ETFs). If you’re a long-term investor, you just keep putting a set amount of money in an index fund (or stock) each month no matter if the market is up or down. Hint: No matter what strategy you use, be sure to “pay yourself first” by keeping an emergency cash fund. This is simple but very important advice.

I just read that Berkshire Hathaway, while operating profits jumped by 39 percent, Warren Buffett’s conglomerate lost $53 billion on its investments last quarter. Ouch! Even the Wizard of Wall Street can lose money in this market. (Source: CNBC).

I dislike repeating myself but this is going to be a tricky market environment at least until November, when we should learn the market’s true direction. Until then, volatility is low so it’s easy for certain hedge funds with high speed algos to “help” move the market higher or lower.

Bottom line: Be careful out there!

MY TWO NEWEST BOOKS WERE RECENTLY RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – RALLY. SPX exploded higher, from 3961 to a mind-blowing 4131, a spectacular 170-point rally. This was the second huge rally in a row, but don’t get fooled: We are still in a bear market. SPX is above its 50-day MA, and even with the 100-day, but below its 200-day MA. It must rise above its 200-day before the coast is clear. Note: Futures are lower on Sunday night (but that could change in the morning).

Long-term trend (WEEKLY CHART) – STRUGGLING. On the weekly, SPX is above its 200-week but still below its 50-week but even with its 100-week. Opinion: We had an amazing two weeks but we are not out of the woods yet.

MACD (WEEKLY) = MIXED . The WEEKLY MACD is struggling to rise above the 9-day signal line and it’s still below the zero line. Mixed Signals.

RSI: (S&P 500) @65.90 (DAILY) SLIGHTLY OVERBOUGHT.  RSI is overbought but not at extreme levels.

Daily Intraday Volatility (VIX) = 21.33= COMPLACENT: The VIX keeps falling, which reflects the no-fear, What, Me Worry? market environment.

Comment: It was a spectacular two weeks, the best July since 2020. Considering that the Fed signaled that interest rates rising by another 75 basis points made the rally even more amazing. But now we are back to reality.

Many experts are predicting the two-week rally will have legs and last the rest of the summer. Be suspicious of predictions like this because no one knows what the market is going to do this week, let alone this month.

It’s true the rally caught a lot of people off guard as pessimism reached extreme levels. People are still worried about inflation, recession, and a falling stock market, as well as the crypto plunge. As often happens, the market does the opposite of what “everyone” thinks. In a bear market, it can get even more confusing.

If you believe the technical definition of a bear market (i.e., 20 percent below its recent high), then you may believe that the bear market is “over” (as some are proclaiming). Don’t believe them.

Until SPX and the other indexes rise above its 200-day MA, the bear market continues. Bear market are tricky animals so it’s easy to get fooled. This is not the time to plunge into the market but instead, use strategies such as dollar cost averaging or increase cash.

By the way, a few weeks ago, if you had read my interview and followed the advice from trader Howard Kornstein, you’d be looking at huge profits. All of the stocks he recommended made substantial gains over the last two weeks. Now, however, it’s a different ball game.

For example, RSI is saying the market is overbought after a spectacular two-week run. Is this the time to join the buying frenzy and buy after this rally? In my opinion, that would be a risky move. Sometimes you have to be contrarian to survive.

MY TWO NEWEST BOOKS WERE RECENTLY RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – RALLY. SPX rallied strongly last week, from 3863 to 3961, an impressive 98-point rally. I believe it caught a lot of people by surprise, but that’s the nature of bear markets. Rallies followed by selloffs: SPX 4000 is within reach, so let’s see how it reacts. Futures are SLIGHTLY LOWER on Sunday night, but that could change in the morning.

Long-term trend (WEEKLY CHART) – SIDEWAYS. Even with last week’s rally, SPX is still below its 50- and 100-day MA but above its 200-day MA. This week should be a revealing week as we could go in either direction (and probably will).

MACD (WEEKLY) = LOWER . The WEEKLY MACD is still displaying a negative market environment.

RSI: (S&P 500) @55.91 (DAILY) NEUTRAL.  RSI is a smidge above 50 but still in the neutral zone.

Daily Intraday Volatility (VIX) = 23.03= COMPLACENT: The VIX is telling us that option traders are calm with little fear.

Comment: This is going to be a big week. During the Fed’s two-day meeting on Tuesday and Wednesday, the Fed is expected to discuss changes in monetary policy. Technically, the Fed doesn’t directly raise or lower interest rates (which I mistakenly led you to believe in previous blogs). Instead, they do the following, as quoted from Matthew Graham of Mortgage News Daily:

“The Fed Funds Rate is a target set by the Fed for interest charged by big banks to lend money to each other on an overnight basis.  It has several policy tools that ensure the target is reliably hit within a quarter of a percent margin (one reason that the Fed communicates rate targets in 0.25% windows). In other words, the Fed “decides” (for lack of a better term) what the shortest-term loans will cost.  From there, the market decides what longer term loans will cost…” (Here’s a link to the entire article: https://bit.ly/3zAtr3J

In addition to the Fed, economic reports including GDP will be released, which will give insights into how the economy is doing. Earnings are expected from Microsoft, Apple, and Alphabet (Google), to name a few. It will be fascinating to see how investors react to all of this news, and whether the tech sector rises or falls.

Be prepared because this should be a wild week, similar to taking a roller coaster ride — there should be numerous intraday reversals. Experienced short-term traders may like this environment but most investors should stand back and think long term.

MY TWO NEWEST BOOKS WERE RECENTLY RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  

I wrote a column for MarketWatch on the strategies of one professional trader. It’s a must-read: https://on.mktw.net/3cq5Cmh

I was also quoted in an article on bear markets by Joseph Toppe for Capital.com: https://bit.ly/3cfJ47r

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – LOWER. Last week could have been a lot worse, even though SPX fell from 3899 to 3863, a mild 36-point pullback. (The 72-point Friday rally saved the day.) The bear market continues as the major indexes are below their moving averages on the daily chart. Futures are HIGHER on Monday morning.

Long-term trend (WEEKLY CHART) – SIDEWAYS. The major indexes on the weekly chart are still below their 50- and 100-day MA but above its 200-day MA (and not moving much in either direction).

MACD (WEEKLY) = LOWER . The WEEKLY MACD is a lagging indicator, so it is reflecting the negative market environment. 

RSI: (S&P 500) @49.10 (DAILY) NEUTRAL.  RSI is neutral, and until it moves to extreme levels, it’s best to wait for a better trading opportunity.

Daily Intraday Volatility (VIX) = 24.23= COMPLACENT: The VIX is still in the doldrums. We’re in a bear market but option traders are not nervous or panicked (as reflected by a low VIX).

Comment: Bear markets are not much fun for most people. As professional trader Kornstein said in my article for MarketWatch, until the Fed stops raising rates in December, the bear market continues.

From a trading or investing stand point, this bear market is not easy. One day the indexes and many stocks are sinking. The next day, we get a 700-point Dow rally. This market is impossible to predict, one of the reasons why it’s important to have a strategy. In the MarketWatch column, Kornstein suggests buying at 52-week lows and selling at 52-week highs.

Most importantly, you need a buy and sell target price before taking a position. In fact, after buying, know the price you will sell. Selling at the 52-week high is distasteful to some traders who try to capture even more profits. The problem with buy and hold forever is investors sometimes get trapped, as many recently did when many major stocks (and indexes) plunged. It may take months or years (or never in a few cases) for some beaten-down stocks to revisit their all-time highs.

Even in a bear market, there are trading opportunities. It takes patience and skill and an ability to find stocks that fit your criteria (such as dividend paying stocks that make tangible products.

In closing, no one can predict which way the market will go this week, but at least until December, it’s going to a wild and wacky journey. Hold on for dear life (HODL)!