S&P 500 is above its 200-day moving average but pointing straight down = Neutral
S&P 500 is below its 50-day and 100- day moving averages = Bearish
S&P 500 one-month trend: SPX broke its uptrend and is in a downtrend.
RSI: (S&P 500) @ = 40.78 = Slightly Oversold
MACD: Below Zero Line and below Signal Line = Bearish
Daily Intraday Volatility: 19.87 (Neutral). The algos are doing everything in their power to suppress volatility. Nevertheless, volatility has increased.
Comment: A lot of pundits and financial know-it-alls are going to tell you “why” the market went down last week. To tell you the truth, knowing “why” the market goes up or down is not helpful. What is helpful is knowing “what” the market is doing. That will be our focus today.
As I’m writing this on Sunday night, the SPX futures are lower, but there is no panic. As you know, we fell hard last week, especially on Friday, and we’re getting closer to the S&P 500 200-day moving average (at or around 2800). As SPX gets closer to this line-in-the sand support level, the algos will do anything possible to defend it. The odds are very good we will bounce at the 200-day moving average (assuming it gets there).
The only way SPX slices below the 200-day in the next few days is if there is panic selling. So far, all of the selling has been orderly and calm. In fact, if it wasn’t for the algos buying on every dip, the selloff last week would have been much worse.
But, based on the broken uptrend, the extreme negativity, the low PMI, and a struggling economy, the bull market appears to be over. However, the programmed buy-on-the-dip algos will keep defending until investors start panic selling, and that hasn’t happened yet.
This is a very dangerous market and difficult to navigate. If you’re a complacent investor, you will remind yourself that the “market always comes back,” which are dangerous words in a recession and bear market, especially if you own individual stocks. And if you are a trader, one tweet can cause the market to rocket higher or plunge. Yes, it’s dangerous for both investors and traders.
To survive, you must use hedges if you are a trader, and diversify if you are an investor. If you make an all-or-nothing bet on one side or the other, you are gambling, not trading. Nevertheless, as we enter the difficult months of September and October, the odds are with the bears (based on the indicators above and dire economic indicators such as PMI and the inverted yield curve). However, the algos will do everything in their power to run the market back to the 50-day moving averages. They might fail this time, but they will do their best.
Volatility is here to stay for a while, and no one can predict what the market will do in the near future. It’s times like these that I like to raise cash, but that is me.
Bottom line: Keep your eye on SPX 2800 and watch the algos defend it. If SPX slices below 2800 and stays below, it will get a lot uglier a lot faster. This week should be another wild ride (on some days), so be ready for anything.
Options Alert: There is a lot of option interest for the SPY October 280 put.
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