WHAT THE INDICATORS ARE SAYING
This is what the technical indicators are telling us this week:
One-week trend = WILD. SPX was headed to the abyss last week when it made an astonishing 2.24% rally on Friday, ending the week higher. SPX rose from 4348 to 4384, a 36-point advance. SPX is still BELOW its 20-day and 50-day moving averages, a red flag. Futures are sinking on Sunday night, but that could change in the morning.
SPX 20-day (WEEKLY) = LOWER. As mentioned above, SPX remains below its 20-day and 50-day moving averages. The Friday blow-your-socks-off rally lasted one day, typical of a bear market environment. As long as SPX and the other indexes are below their 20-day and 50-day on the weekly, caution is advised.
RSI: (S&P 500) @44.67 (WEEKLY) OVERSOLD. RSI is on the oversold side but not at extreme levels yet.
MACD (WEEKLY) = BEARISH: The weekly MACD is below the 9-day signal line and almost touching the zero line. If there is a selloff on Monday, then MACD will be below the zero line, a bearish signal.
Daily Intraday Volatility (VIX) = 27.59 = ELEVATED: Fear is still in the hearts and minds of option buyers.
Comment: Before I give an overview of the market, I want to point out what happened on Thursday and Friday. On Thursday, the market was headed into the abyss, and was lower by nearly 900 Dow points. Around midday, the market staged a spectacular recovery and ended the day higher by approximately 90 Dow points.
This intraday reversal, one of the strongest in memory, was a clue the selloff was temporarily over. It was the time to go long, and sure enough, the rally carried over into the next day. Any hapless short seller who misread the signals would have been blown out on Friday. Lesson: Always be on the lookout for intraday reversals, and don’t fight the signals no matter what you “think” is going to happen.
Friday was absolutely stunning, what I refer to as a “Steamroller.” Anyone who tried to short on Friday may not have an account right now. It was one of the strongest rallies in years.
As it turned out, that rally may only last a day, what Mark D. Cook used to call a “one-day wonder.” If the selloff on Monday continues, it would be more evidence that a bear market may be near or here. Again, it’s time to be on your toes.
There is a lot of bad news swirling around, as you are well aware. Geopolitical, inflation, rising oil, the list goes on and on. It will be interesting to see how the market reacts to all the bad news this week. In a bull market, the market tends to shrug off bad news and move higher. In a bear market, the market shrugs off good news.
I’m not saying that it’s a bear market. Perhaps we’ll get lucky and only experience a correction. I certainly hope so. Meanwhile, reduce trading size and be alert. The easy days are over for now. It’s time to bring your “A” game to the trading floor.
Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G
For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA
For insightful analysis of the stock market, read Lance Roberts’ latest newsletter:www.realinvestmentadvice.com
For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com