Here are the most recent market indicators:
S&P 500 is well below its 200-day moving averages = Bearish
S&P 500 one-month trend = Downtrend (with a major pivot)
RSI: (S&P 500) @38.99= Mildly Oversold = Bullish
Daily Intraday Volatility: Moderate to High
I’ll try and keep this short because of the shortened trading week.
First, as expected, the market bounced back strongly last week, although no one predicted a 1000 point Dow rally in one day. That was amazing. Because RSI had dropped as low as 19.29 on Monday, I was waiting for the monster rally, and the bulls got their wish, at least for a day.
Unfortunately, the rally only bought back 2 days of losses (Source: Lance Roberts), so the downtrend is alive and well with occasional pivots to the upside. In fact, it will be fascinating to watch this week to see if the market can rally higher. As I wrote in my MarketWatch article, watch the rallies, not the declines. If the rallies are weak, and then fail, that is a clue this is more than a correction but a bear market.
Investors are still too hopeful, especially those that own the FAANG stocks. Even though the companies might be excellent, the stocks can still go down much further, and that’s a lesson investors learn the hard way. (I remember in 2007 when everyone owned and loved Citicorp. Investors were in shock when it fell from the 50’s into single digits. Yes, many strong companies fall hard in bear markets).
Bottom line: Until proven otherwise (the indexes will have to rise above their 200-day moving averages), treat this current market as a bear market. Short or sell into rallies, and increase cash positions on rallies. Don’t forget that some of the strongest rallies occur within bear markets, so trade accordingly.
Have a great New Year!
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