Bullish or Bearish? Week of January 25, 2021

This is what the technical indicators are telling us this week: 

One-month trend = Uptrend. The indexes drifted higher last week, closing at 3841 on the SPX, higher by 73 points from a week ago. On Friday, the indexes dropped, disrupting a low-volume uptrend. Futures are slightly higher on Sunday night.

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) @ 65.00 (Daily) = Overbought. If RSI moves above 70, that is a strong overbought signal, so buyer beware. With the Fed in control this week, we could easily move into extreme overbought levels.

MACD (Weekly) = Bullish. MACD is above its zero line and above its 9-day Signal Line

Daily Intraday Volatility (VIX): 21.91= How low can we go? VIX is saying there is no fear.

Comment: Last week, a four-day week, the indexes drifted higher until Friday. With the Fed meeting this week, the odds are good the uptrend will continue early in the week.

On the other hand, the market is overbought, VIX is in the basement, and there is no fear. These are the ingredients for a severe plunge in the near future, although no one can predict when it will occur, or how bad it will get.

Professional traders smarter than me (i.e. Paul Singer) are warning of a major pullback, saying this is the “end game.” As you already know, most bearish predictions have not worked out very well. Nevertheless, it would not be a mistake to take money off the table, and trade or invest cautiously. That’s a decision only you can make.

Bottom line: Based on historical trends, the market typically moves higher right before and during the Fed meeting. I would not be surprised to see an uptrend early in the week. After that, the market will move depending on what the Fed says, or doesn’t say.

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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: https://wolfstreet.com

Bullish or Bearish? Week of January 19, 2021

This is what the technical indicators are telling us this week: 

One-month trend = Temporarily Broken. The indexes drifted lower last week, closing at 3768 on the SPX, (lower by 56 points from a week ago). On Sunday night, the futures are higher, but that could change in the morning. 

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) @ 57.06 (Daily) = Neutral. After last week’s pullback, RSI is back in neutral territory. Anyone who ignored the RSI signals last week did so at their own peril. When RSI hits 70 or higher, as it did a week ago, that’s a warning sign.

MACD (Weekly) = Bullish. MACD is above its zero line and above its 9-day Signal Line. When the weekly MACD falls, that will be a sell signal. We’re not there yet. Note: I switched from observing the daily to the weekly MACD. 

Daily Intraday Volatility (VIX): 24.34= VIX is still low, and telling us there is little or no fear. 

Comment: Last week, RSI warned us that a pullback was likely, and it didn’t disappoint. Although volatility was contained, the market drifted lower last week. It could have been a whole lot worse, but the algos came to the rescue. 

As you know, this is a four-day week, so anything is possible. We have a new administration, a virus that’s still out of control but with hope the vaccines will save the day. The nation is on edge but the stock market is oblivious. It has created a very strange financial environment. 

Four-day weeks are historically difficult. An increase in volatility is possible, even likely. With the market still at all-time highs and with a battered economy, be prepared for anything. There is reason to be hopeful for the future, but in the short-term, the country is going through hell. 

Meanwhile, the stock market is in a world of its own. That is why it’s impossible to predict what direction the market is headed this week. My advice is to wait for clues on Monday morning to see which way the wind is blowing. Then trade accordingly. 

Bottom line: It could be a tricky trading environment this week so be careful, and trade small until you can identify the trend (if you are a trend trader).

Lance Roberts wrote a thoughtful piece on how the market is vulnerable because “everyone is in the pool.”: https://bit.ly/3ircD4Z

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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: https://wolfstreet.com

Bullish or Bearish? Week of January 11, 2021

This is what the technical indicators are telling us this week: 

One-month trend = Bullish. The indexes continued to rise last week, closing at 3824 on the SPX, (higher by 68 points from a week ago). On Sunday night, the futures are drifting lower and lower, but that could reverse in the morning, or get much worse.

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) @ 67.28 (Daily) = Overbought. RSI is in the danger zone at 70.27. This is a warning sign.

MACD (Weekly) = Bullish. MACD is above its zero line and above its 9-day Signal Line. Note: I switched from studying the daily to the weekly MACD.

Daily Intraday Volatility (VIX): 21.56 = VIX is still in the basement, and telling us there is no fear. 

Comment: SPX is on a roll, and rose another 68 SPX points against all odds. In fact, the indexes moved up so high and fast that even some bullish professionals are warning of a severe pullback. They are probably looking at indicators that are signally an extremely overbought market.

RSI, my personal favorite, hit 70 on Friday. The indexes have pulled back on Sunday night (in the futures market), which is not surprising considering all of the bad news swirling around.

Speaking of overbought, Bitcoin rose to $40,000 per coin, which attracted the attention of thousands of investors who are suddenly interested in bitcoin (again). It’s interesting that investors ignore stocks and other products such as bitcoin when it’s at low prices. But when it spikes higher, suddenly everyone is interested. A lesson I learned a long time ago: If a stock or other product such as bitcoin moves up too high and too fast, the risk of a reversal is extremely high.

With all of the negative political, economic, and virus news swirling around, it’s astounding the stock market is at these extreme levels. Do not be shocked if there is a sudden and violent plunge in the near future, maybe even this week or next. We haven’t had any pullbacks since last March, so we’re definitely due for a nasty surprise.

Bottom line: The market is overbought and dangerous according to the indicators. Be careful out there.

The following is an excellent piece by Lance Roberts, on how the market is overbought and over-extended: https://bit.ly/2Li9Q1O

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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: https://wolfstreet.com

Bullish or Bearish? Week of January 4, 2021

This is what the technical indicators are telling us this week: 

One-month trend = Bullish. Last week, SPX drifted through the four-day New Year’s holiday on low volume and momentum. The indexes drifted slightly higher during the week. SPX closed at 3756 on Thursday night (higher by 50 points from a week before). On Sunday night, the futures are flat, but that could change in the morning. 

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) @ 67.28 (Daily) = Overbought. RSI is getting close to the danger zone, i.e. 70 RSI.

MACD = Neutral. MACD is above its zero line but is even with its 9-day Signal Line

Daily Intraday Volatility (VIX): 22.75 = VIX is still saying there is no fear. 

Comment: The bulls are dreaming of a Santa Claus rally, which includes the first week of January. In addition, the so-called January effect suggests that how the market performs in early January determines the rest of the year. Sometimes the January effect works, sometimes not.

Nevertheless, the market is overbought, the virus is exploding, and the economy is mixed. It’s amazing to many that the stock market has done this well, all things considered.

However, if there is anything I learned about the stock market, it’s that what most people “think” will happen doesn’t usually happen. When it comes to the stock market, forget common sense, as the market follows its own path. That is why I follow the market rather trying to outwit it.

The market is overbought according to most technical indicators, but that won’t prevent it from becoming more overbought,. However, once RSI rises about 70 on SPX, be on guard. Trade or invest with caution if and when RSI rises above 70.

Whether you are trading or investing, be sure you are properly diversified in case the market goes in the “wrong” direction. Always prepare for worst case scenarios and look for opportunities to buy winning stocks at competitive prices. Right now, unfortunately, most of the most popular stocks are at or near all time highs.

Bottom line: Stand by and see which side wins. It could be a tricky road over the next two weeks.

Bitcoin news: If you haven’t looked, bitcoin, which rose to $20,000 a coin a few years ago before plunging to $6,000, has made a remarkable recovery recently. If you haven’t looked recently, it spiked from $20,000 to $33,000 per coin. It either means that bitcoin is ridiculously overbought, or a solid long-term investment. I have no idea which, but similar to Tesla, short sellers got smashed.

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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: https://wolfstreet.com