Bullish or Bearish? Week of February 28, 2022

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.

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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

Bullish or Bearish? Week of February 21, 2022

WHAT THE INDICATORS ARE SAYING 

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

One-week trend = LOWER. Once again, SPX retreated, falling from 4418 to 4348, a 70-point pullback. The bears have been dominating the bulls since January. The uncertainty about Russia and Ukraine hasn’t helped. The futures are LOWER on Monday night (but that could change in the morning).

SPX 20-day (WEEKLY) = LOWER. SPX is still BELOW its 20-day moving average and now below its 50-day MA. And yet, when this happened in the past, a rally was not far behind. Although it looks bleak, an unexpected rally is always possible.

RSI: (S&P 500) @42.63 (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 headed directly for the zero line. It’s leaning bearish but it’s not there yet. Wait and see.

Daily Intraday Volatility (VIX) = 27.75 = ELEVATED: There is an elevated level of fear, which means option traders are gobbling up puts for protection. That also means the cost of put and call options are rising. Fear is creeping back into the hearts and minds of option traders.

Comment: The market started the year weak and it’s gotten even weaker. Add in the Russia-Ukraine mess and you have a recipe for trouble. This is not the time to panic, but to plan. Review what you own, make sure you are properly diversified, and decide if you are a short-term trader or long-term investor.

Investors with a long-term view who are comfortable with their holdings will likely stay the course. This is the advice given by market gurus such as Peter Lynch and the late John Bogle. Know what you own.

On the other hand, if you are a short-term trader, this will be a challenging environment. Volatile markets are not easy to manage but those who have learned how can profit from corrections and short-term pullbacks.

As I wrote earlier, although things look bleak right now, a mind-blowing rally is always possible. Therefore, don’t get too comfortable with the bear side as the market has been known to fool most of the people most of the time. Just when short-sellers believe they are in the Winner’s Circle, something often comes out of left field to wreck their hopes and dreams. Be on your toes no matter which side you are on.

It’s too early to declare a correction (let alone a bear market). SPX has fallen below its 50-day moving average, and that is a red flag. We have to see whether it can rise back above it during the week.

Obviously,, with the uncertain geopolitical situation and rising interest rates, it’s probably going to be an unpleasant week, at least at first. However, the market is always full of surprises, so be prepared for anything.

As I wrote in an earlier blog, the worst scenario for the stock market, one that I hope does not happen, is that we get a long, drawn-out, drip, drip, drip market that moves lower for months. No one is expecting that but it would be the most damaging. If that awful scenario comes true, we could see, for example, three days down, then one day up. It would not be fun (or profitable) for most people.

Bottom line: The odds are good we are entering a very unpleasant market environment. Have a plan, evaluate what you own, and raise cash if needed. Good luck out there, we are all going to need it.

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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

Bullish or Bullish? Week of February 14, 2022

WHAT THE INDICATORS ARE SAYING 

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

One-week trend = LOWER. Last week was a sad one for the indexes, culminating in a selloff for SPX, which FELL from 4500 to 4418, an 82-point shellacking. Back and forth we go between the bulls and bears until someone dominates. Futures are FLAT on Sunday night.

SPX 20-day (WEEKLY) = BELOW. SPX is still BELOW its 20-day moving average but ABOVE its 50-day MA. It’s still a red flag on the weekly but there is no reason to worry too much until the 50-day is breached.

RSI: (S&P 500) @45.67 (WEEKLY) NEUTRAL TO SLIGHTLY OVERSOLD. RSI could go in either direction. It’s in the neutral zone where most traders get chopped up. No significant signals at this time.

MACD (WEEKLY) = BEARISH: The weekly MACD is below the 9-day signal line and headed directly for the zero line. Unless the market can be saved this week, MACD “could” reach the zero line. That would be a strong bearish signal. Right now it’s slightly bearish with room to reverse direction.

Daily Intraday Volatility (VIX) = 27.36 = ELEVATED: Volatility is back, which means option traders are gobbling up puts for protection. That also means the cost of options is rising (along with everything else). The warning signs are there – this should be an interesting week.

Comment: When I put all of the clues together, I see a bearish picture. VIX is elevated, MACD is headed towards the basement, SPX is below its 20-day and the weekly trend is down. On the plus side, we have seen this scenario in the past, and in the past the market staged a remarkable recovery. It could happen again.

On the other hand, this is not the same market as a year ago. Inflation is heating up, the Fed is warning they will raise interest rates (they may be forced to), there are geo-political concerns, and oil has spiked (probably because of the threat of war). Add in a 13-year bull market and it looks bleak.

No one can tell you what is going to happen this week. Most investors have been trained to “stay the course” and that has worked. The market is hanging on for dear life right now but anything is possible. That’s why it’s a waste of time to make a prediction.

I know some readers don’t want to hear it but there is always the possibility of a bear market. That would be the worst scenario, especially if it lasted a long time. The best scenario would be a short-lived correction. With that scenario, the indexes would drop by less than 20 percent, and bounce back relatively soon. Corrections are necessary on occasion to remind over-confident investors that markets do go down sometimes.

Bottom line: It’s been an unpleasant few weeks, especially for those holding technology stocks. It appears as if many fund managers are moving into recession proof stocks while dumping technology. Keep that in mind as you attempt to maneuver in an extremely treacherous trading environment. Not many are going to make it to the Winner’s Circle this year.

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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

Bullish or Bearish? Week of February 7, 2022

WHAT THE INDICATORS ARE SAYING 

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

One-week trend = HIGHER. It was a more subdued week for the indexes, culminating in a rally for SPX, which rose from 4431 to 4500, a 69-point gain. While the indexes rallied, certain individual stocks (such as Meta and PayPal) got smashed, and for one day last week, the market plunged. (More on this later). Futures are NEUTRAL TO SLIGHTLY LOWER on Sunday night, subject to change in the morning.

SPX 20-day (WEEKLY) = LOWER. SPX is still BELOW its 20-day moving average but ABOVE its 50-day MA. This means SPX is still not completely out of the woods — at least until it rises back above its 20-day, and stays above. At the moment, it’s a red flag but no reason to panic.

RSI: (S&P 500) @49.52 (WEEKLY) NEUTRAL. RSI went from slightly oversold to neutral. You can flip a coin because no one knows which way SPX is going this week based on RSI.

MACD (WEEKLY) = SLIGHTLY BEARISH: The weekly MACD is still above the zero line but is firmly below the 9-day signal line. It’s still a cautionary red flag until it can rise back above the 9-day.

Daily Intraday Volatility (VIX) = 23.22= NEUTRAL: Volatility fell again, with the VIX almost back below 20, which means that all is calm again. The previous panic of two weeks ago has been forgotten, as reflected by the low VIX.

Comment: January was just a bad memory as the indexes made a nice recovery during the last two weeks. VIX fell back to a less volatile level (i.e., 23) and RSI is telling us that the market is neither overbought nor oversold.

Nevertheless, it was an ugly week for certain individual stocks. Meta (i.e., Facebook) got smashed by 26 percent in one day; PayPal and Netflix also got hit badly. Even Amazon got hit by 7 percent in one day before rallying back by 12 percent.

It’s a tale of two tapes: The indexes look rather decent, and in fact, rallied nicely. But if you were unlucky enough to own one of the stocks that plunged, you are feeling pain. In fact, the market appears to be playing a game of “Whac-a-Mole,” when you wake up each day not knowing which stock is going to get “whacked.”

The Fed is in a tough spot, all of their own making. They were late to raise interest rates, which allowed the market to move to extremely overbought levels. It’s possible this is a bubble but we won’t know the truth until later.

Meanwhile, because of inflation, the Fed is forced to raise interest rates, probably by a puny 25 basis points. If they raise rates by much more, it will affect the housing market, particularly mortgage payments, as well as any borrower whose payments are affected by interest rates. That’s a lot of people!

In other words, the Fed is going to raise rates (even if by 25 basis points) at exactly the wrong time! It will be fascinating to watch this delicate dance play out over the next few weeks and months.

Bottom line: After 13 years of a bull market, it’s getting dangerous out there. Last week it was Netflix, Meta, and PayPal. This week there could be new victims. Fortunately, the indexes keep plugging along higher, ignoring the damage done to certain individual stocks. The question we all want to know is: Which stock is going to get whacked next?

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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