The Weekly Trader

Here are the most recent market indicators:

S&P 500 one-month trend = Downtrend (major Pivot Point)

S&P 500 is below its 200-day moving averages = Bearish 

RSI: (S&P 500) @36.43 = Oversold = Bullish 

Daily Intraday Volatility: Moderate to High 

Comment:  Now you know what a bear market feels like! Judging by the chart and the action from last week, the market is in a downtrend. Sentiment is awful: Investors Intelligence has the most bearish readings in five years. Mutual fund outflows were the highest in years. Everywhere you turn, there is negativity. In addition, this is the worst December for the S&P since 1980. The investor chatrooms are overwhelmingly negative. Adding to the doom and gloom, the Fed seems to be indecisive and nervous.

Believe it or not, because sentiment is so negative, it would not surprise me to see a huge rally this week, so be prepared. RSI is also telling us the market is oversold (another reason a rally is likely). 

The Fed has a difficult balancing act at their meeting (Dec. 18 and 19th) this week. If they raise rates too high, the market will protest (as it is doing now). If they stop raising rates, people will wonder if the economy is worse than they are admitting. More than likely, the Fed will raise rates by a quarter point this week but signal they will ease next year. If all goes according to plan, the market will rally strongly on their comments.  (If the market doesn’t rally on the Fed’s comments, then the problems are more serious than anyone realizes, or the Fed has lost credibility. Either scenario is not good).

No matter what happens this week, you have to change with the market. It is not easy to trade a treacherous bear market. Unfortunately, we could be in the 2nd inning of a 9-inning game. That means we have a long way to fall, but it probably won’t happen in a few days or weeks (i.e. crash). The most difficult market environment is a long and slow downward trend with occasional rallies. It is not easy to trade, or invest. On the way down, investors remind themselves to hold even though the pain from losses become excruciating (believe me, I’ve been there). They correctly remind themselves that Warren Buffett holds in bull and bear markets. For traders, the increased volatility is a double-edged sword. On one hand, profits can be made on the way down but it’s extremely difficult. Millions of nervous investors threw in the towel and moved to cash last week to ride out the storm from the sidelines.

Bottom line: The easy days of a bull market uptrend are over, so be ready. You will have to decide if you are a long term investor, trader, or in cash.  (Some will manage all three simultaneously.)

 

 

 

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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 = Downtrend (with multiple Pivot Points)

S&P 500 is below its 200-day moving averages = Bearish 

RSI: (S&P 500) @39.32 = Near oversold = Moderately Bullish 

Daily Intraday Volatility: Moderate to High 

Comment: As expected, last week’s Monday rally was a short-term blow off top, and the market plunged for the rest of the week. The market fell so fast in the last two days that we’re nearly oversold. Because no one wants to see a major selloff two weeks before Christmas, prepare for an upcoming rally, at least for a few days. Soon, the Fed, the White House, and Wall Street will make positive comments. The Fed has a meeting on Dec. 18th and 19th, so it’s extremely likely they will say something positive to instill confidence. 

However, after the Fed makes positive comments, if the markets keep falling, then it’s much worse than anyone imagines. For now, the Fed is feeling pressured and perhaps is unnerved by recent market action. In addition, they probably know that earnings are not going to be as strong as expected. They’re in a real quandary: If they don’t raise rates, it would scare the market. If they raise rates too much, it could break the market. So they are going to have to talk a good game to avoid a major selloff. For investors’ sake, I hope they succeed.

Bottom line: The easy days of a slow, uptrending market are over for now as volatility has returned in full force. The algos were Wall Street’s friend on the way up, and they will be their opponent on the way down.

______________________________________________________

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 = Major Pivot (Possible Blow-off Top)

S&P 500 has moved above its 200-day moving average, and above its 50-day MA (on Monday): Bullish

RSI: (S&P 500) @54.68+= Near Overbought (likely to become overbought on Monday morning)

Daily Intraday Volatility: High (to Moderate)

Comment: Fortunately, we were prepared for the monster rally last week. Two weeks ago, it was mostly doom and gloom. 

It was surprising that Fed Chairman Powell completely changed the wording about interest rates, fueling an even bigger than normal rally. The futures are telling us the extreme rally will continue on Monday (Dow should open over 400 points). This is not the time to get greedy, and in fact, this is the time to reduce losing positions. 

In reality, not much has changed. Nevertheless, Wall Street and the government wanted a positive year, and they could get their wish. Unfortunately, eventually there will be a price to pay for financial engineering. It is still going to be quite a feat to keep the indexes elevated until January 1, but it’s very possible. Judging from the past, it would not be surprising if we limp into the end of the year with low to moderate volatility (that’s what Wall Street wants). However, we have a slew of economic data that will be released this week, so any negative surprises could send the market in reverse. 

When the selloff returns (don’t forget it’s only been a week since the last one), and it will eventually, investors will wish they had sold some of their stocks. 

What if the current rally continues into next year? In that case, you stay cautiously long while preparing for an even bigger correction. Eventually, all of these financial bubbles are going to pop.

One week does not change a dangerous market environment. The FAANG stocks are still in trouble, debt levels are sky high, the credit markets are showing signs of stress, and the snapback rally appears to be a bear market rally rather than a true trend change. 

Bottom line: Be careful out there whether you are short or long. If you’re not experienced, trade small. One thing for sure: When the selloff does come, it’s going to be one of the most profitable shorting opportunities in many years. As I’ve said in the past, this is the time to learn how to short, buy put options, or get out of the way. 

Reminder: The markets are closed on Wednesday because of the memorial to George HW Bush.

______________________________________________________

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 = Down  (Bearish) The uptrend is broken and the trend is down. Nevertheless, rallies are still likely. 

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

RSI: (S&P 500) @35.50 = Near Oversold. A rally is likely. 

Intraday Volatility: Moderate 

Comment: You already know that last week was the worst since 2011, and the third worst in history for the indexes during Thanksgiving . The FAANG stocks got slaughtered (along with oil and bitcoin), losing over $1 trillion dollars in value. A month ago, investors were giddy about how much money they had been making, and now they’re anxious, but hopeful. As long as the indexes stay below its 200-day moving average, the bears are in control. That being said, we are near oversold (RSI), so a snapback rally is likely.  When that rally occurs (it could be on Monday), wise investors will take the opportunity to reduce positions on losing stocks. 

More than likely, and this is important, most rallies may fail to rise above its 200-day moving average. If the indexes are unable to rise above its 200-day MA, that will confirm we remain in a downtrend. Nevertheless, keep in mind that even in a downtrend, there will be these monster rallies (such as the 900-point Dow rally a few weeks ago). 

I can’t stress how important it is to learn and read about bear market environments, about shorting, and about the 1929 crash. Many investors are going to ride it out, and more than likely, there will be opportunities to get out with relatively small losses. But if this downtrend continues, and it gets worse, many of the most beloved stocks will reach levels that seem unimaginable at the moment. Last week, the FAANG stocks such as Apple lost a year’s worth of gains. If the downtrend continues, it could get worse.

In life, everything changes and so does the stock market. It is obvious to anyone who is paying attention that the market has changed, and that the “easy days” of the last 10 years are over. It is highly unlikely we will return to those days anytime soon. The sooner you realize that we have entered a new phase, and that increased volatility and whipsaws will be the norm, the better prepared you will be.

This is the time to reduce size if trading or increase cash if investing. They say that no one can time the market perfectly, and that is true, but if I see a speeding locomotive heading towards me, I will get out of the way. The flashing warning signs are everywhere, and although there will be still be rallies along the way, the market has entered a dangerous phase that should not be ignored. Here’s something else to think about: Just as we overshot on the upside, it’s possible we will do the same on the downside (not immediately, but in the future). Keep an open mind for any scenario and most important, be prepared.

Other: Wolf Richter wrote a fascinating piece on the bitcoin crash this weekend. It’s an excellent read: https://bit.ly/2AknCYo

______________________________________________________

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 = Variable  (Bearish) The uptrend is still broken, but that could change if the indexes move firmly above their 200-day moving averages and beyond. 

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

RSI: (S&P 500) @46.75 = Neutral 

Intraday Volatility: Moderate 

Comment: This week will be shortened because of the Thanksgiving holidays. Be careful about trading on holiday weeks as it’s easy to get chopped up if you’re not careful. The uptrend has been broken and the FAANG stocks, which were on a nonstop ride to the moon, have been damaged. Investors are still not afraid, and in fact, many are buying on the dip.

I’m going to refrain from calling the current market a bear (or bull) market. Instead, I will call this market dangerous and deceptive. One of the most deceptive parts is that you will often get monster rallies that keep investors hopeful and in the game. It’s very possible we’ll have a Thanksgiving-Christmas rally (if we don’t, it means things are worse than anyone realizes). For the bulls to win this week, they will need to bring the indexes above their 200-day moving averages, and stay above. If they are unable to do this, it would be a danger signal.

Even with the likely rally this week, this is a damaged market and caution is advised moving forward. 

As I’ve repeatedly suggested, this is the time to learn how to buy put options (shorting is for the pros). Some people will buy inverse ETFs, which must be monitored closely. If betting against the market is not in your comfort zone, increasing cash is suggested for diversification and safety. Last week, shorting the rallies worked very well for the first three days. By Friday, the algos took control again and kept the markets calm. 

Bottom line: A holiday rally is possible for Monday and Tuesday (but not guaranteed). Holidays are often tricky to trade, so sometimes the best strategy is to not trade at all (especially from Wednesday to Friday). Have a great Thanksgiving!

______________________________________________________

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