Bullish or Bearish? Week of Nov. 11, 2019

S&P 500 is above its 200-day moving average = Bullish  

S&P 500 is above its 50-day MA = Bullish

S&P 500 one-month trend: SPX is in a strong uptrend.

RSI: (S&P 500) @ 70.22 = Extremely Overbought. SPX is in the danger zone, and although it can keep moving higher, a pullback is imminent.

MACD: Above Zero Line and above Signal Line = Bullish

Daily Intraday Volatility: 12.07 = Extremely Low (Bearish)

Comment: It’s rare to see such overbought conditions. With positive news regarding China, the Fed’s continuation of QE ($60 billion+ a month), and low interest rates, the market appears to be headed to the moon. But anyone who studies the stock market knows we’re in the danger zone. With a RSI of 70 and a VIX at 12, it won’t take much to reverse this market. Also add in the fact that my investor friends are bragging again, always a sign we are at or near a top.

Can the market go higher from here? Yes, it can, which is why you never short an uptrend. But wise traders and investors are on the lookout for signs of a stall and reversal. Typically, that first pullback will catch most people by surprise. Don’t waste your time figuring out “why” the market pulled back (after it occurs). But do spend your time evaluating whether the pullback is short-term (buy on the dip) event, or a longer-term selloff.

Why am I so confident there will be a pullback? Because we’ve gone too far and too fast, investors are giddy, and some of the technical indicators I follow are flashing warning signs. The algos are doing everything possible to keep this market propped up with help from the Fed, and so far they’ve been successful. But when investors and institutions get spooked one day, and they should in the near future, the pullback will be intense.

Investors who don’t read the clues or indicators are perhaps afraid to miss out on the so-called “Christmas rally.” This is what happens at market tops: the ones who resisted buying until now throw caution to the wind and jump in, almost always at the wrong time. As I said, the markets could go higher from here, but the risks are too great and the rewards too small at these overbought levels.

Bottom line: You have to make your own decisions what to do, but I personally have not seen such extreme overbought conditions in many years. Traders with more experience than me have made similar observations. Therefore, go long if you must but tread cautiously.

Note: Monday is Veteran’s Day but the markets are open. To all veterans: Thank you for your service.

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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


Bullish or Bearish? Week of Nov. 4, 2019

S&P 500 is above its 200-day moving average = Bullish  

S&P 500 is above its 50-day MA = Bullish

S&P 500 one-month trend: SPX is in an uptrend.

RSI: (S&P 500) @ 66.56 = Overbought (at 70 RSI it will be in the danger zone, i.e. extremely overbought).

MACD: Above Zero Line and above Signal Line = Bullish

Daily Intraday Volatility: 12.30 = Extremely Low (Bearish)

Comment: The Fed did its job, so in addition to starting QE again with $60B a month (although they say it’s not QE), they also cut interest rates, and injected additional liquidity via the repo market. As a result, the market is at all-time highs while debt levels have gone through the roof (trillion dollar deficits and $23 trillion in U.S. debt). Even with all this stimulus, GDP is mediocre at best at 1.9%, and Chicago PMI at 43.2 with 47 expected. Imagine where the stock market would be if the Fed wasn’t injecting billions into the financial markets.

The SPX three-month chart is a thing of beauty but the market has moved up too far and too fast recently. In my opinion, caution is advised at these levels. A sudden and severe pullback would not be surprising, in fact, it’s expected. Before that occurs, we could have one last “blow-off top” where RSI surpasses 70 as the market makes one last gasp higher.

Bottom line: These are dangerous and strange times. Old-timers tell me they have never seen a market this overbought with so little volume. Below are links to two excellent posts, one from a technical perspective, the other from an economic perspective. The conclusions are similar: The market is extremely overbought (and yet, it could get more overbought before retreating).

Link to Sven Henrich (Northman Trader): https://bit.ly/34ti2Ap

Link to Lance Roberts (realinvestmentadvice): https://bit.ly/2NAamWd

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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