Long-term: S&P 500 is above its 200-day moving average = Bullish
Short-term: S&P 500 is above its 50-day MA = Bullish
One-month trend: SPX is still in a strong uptrend that halted on Friday. It remains to be seen if that was a one-day event or something more meaningful.
RSI: (S&P 500) @ 61.56 = As expected, SPX fell last week, and so did RSI (from 76.56, an extreme reading, to 61.56 (current). SPX still overbought but not extreme.
MACD: Above Zero Line but Signal Line pointing slightly lower = Neutral
Daily Intraday Volatility: 14.56 = Low (Bearish).
Comment: When RSI hit 76.56 last week, it was a warning sign that a reversal was imminent, and it happened on Friday. Although the market is still overbought, it’s backed off from extreme levels. Nevertheless, the intraday reversal on Friday was significant.
As I write this on Sunday night, the futures are down significantly. It’s not surprising as this overbought market smacked into a lot of increasingly bad news. What must be watched is how the market acts as the day progresses. It could go either way, but in the past, the algos have bought on the dip while suppressing volatility. That could happen again.
In addition, there is a Fed meeting this week. As you may know, volatility typically increases on the day the Fed minutes are released (Wednesday). After months of low volatility, it would not be surprising to see volatility spike this week.
It’s also possible that the bears, who have been punished for the last 10 years, might finally have a chance to shine. However, it’s still too early for the bears to celebrate, as we’ve seen this scenario before. A two-day pullback does not make a bear market, so until we see evidence of a trend change, any pullback should be considered as temporary.
How do you know there is a trend change? For starters, the indexes must drop below their 50-day and 100-day moving averages, and stay below. There have been a number of severe pullbacks in the past, but the market has always bounced back. Until the market fails to bounce back one day, stay cautiously bullish.
It will be interesting to see what the Fed does or says this week. Because of the nervousness surrounding Coronavirus, there is a negative bias. Perhaps the Fed can save the week once again.
Bottom line: Be on guard. As volatility increases, so does opportunities, but also mistakes.
Here are two excellent pieces that I recommend reading:
Sven Henrich (Northman Trader): Virus Fears: https://bit.ly/2tRXl4s
Lance Roberts (Real Investment Advice): Market Advance Stalls: https://bit.ly/38J5iaK
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