This is what the technical indicators are telling us this week:
One-month trend = Neutral. SPX moved higher early in the week and then flat-lined before and after Thanksgiving. Volume was thin all week. Perhaps participants will return to the market this week. Futures are slightly lower on Sunday night, but wait until the morning for confirmation.
Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA.
RSI: (S&P 500) @ 63.72 (Daily) = Overbought. As SPX creeps higher, so does RSI. It’s not extreme yet but it’s getting closer. RSI has given some remarkably accurate readings in the last few months, so pay attention if it spikes during the week.
MACD = Bullish. MACD is above its zero line and above its 9-day Signal Line. MACD will give an early signal of a faltering market. It hasn’t given that signal…..yet.
Daily Intraday Volatility (VIX): 20.84 = Very Low. How low can we go? VIX tells me that bullish investors have little or no fear, and are high on hopium.
Comment: SPX touched all time highs last week before falling back and then moving sideways. As the virus explodes higher (although half the country thinks the dangers are overblown), as the economy gets shredded, as more people lose jobs and benefits, we are pinning our hopes on the vaccines. If the vaccines work as advertised, that could be a big time game changer. Let’s hope it’s as good as advertised.
Meanwhile, with the market near all time highs, fear has evaporated, and optimism is in the air. The bulls got their wish when Dow 30,000 was hit, before falling back. Investors might get their wish a second time. This is really something: an all-time high of Dow 30,000 during the second worst pandemic in world history. (Powell better not raise interest rates or there will be dire consequences.)
Meanwhile, the thin volume and wait and see actions by the pros have me concerned. There isn’t mass selling, but there isn’t mass buying either. It feels like a game of chicken, one that I’m not not willing to play. A Christmas rally is always possible, especially if the vaccine is successful.
Some pros are recommending gold (see below), which is not a bad idea in these uncertain times. We’re in uncharted territory, one that I can’t compare to any other period in U.S history, except 1918.
Bottom line: Be careful out there as anything is possible. Investors are shockingly bullish (according to the VIX), and hope is on the way with the vaccine. Unfortunately, I just can’t shake the feeling that an unexpected nasty surprise is waiting for the bulls. Since I don’t trade on feelings, I’m sitting this one out for now.
Here is the latest from Lance Roberts (realinvestmentadvice.com), who wisely warns that risks are increasing: https://bit.ly/36kc4p9
Here is a piece from Sven Henrich (Northman Trader), who says it’s time to buy gold: https://bit.ly/39rg7Cc