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WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK
Short-term trend (DAILY CHART) – LOWER. As expected, the long anticipated rally appeared last week, temporarily breaking the downtrend. SPX rose from 3901 to 4158, a mind-blowing 257-point rally. However, this doesn’t mean the bear market is over (more on this below). Futures are lower on Monday night, but that could change in the morning.
Long-term trend (WEEKLY CHART) – LOWER. Even though we had a spectacular rally, the downtrend is still intact. SPX needs to rise above its 50-week MA and stay above its 100-week MA for the trend to change.
MACD (WEEKLY) = LOWER . The WEEKLY MACD is still below the zero line and 9-day signal line.
RSI: (S&P 500) @53.72 (DAILY) NEUTRAL. RSI did an excellent job of alerting us to extreme oversold conditions. When RSI fell at or near 30, SPX rallied strongly. RSI is not a perfect indicator, but it has been very accurate over the last year.
Daily Intraday Volatility (VIX) = 25.72 = ELEVATED: While everyone else was freaking out over the 7-week selloff, VIX was saying, “What me, worry?” Sure enough, the VIX fell to more “normal” levels last week, indicating that option longs are not worried enough to buy many puts for protection.
Comment: For several weeks, I had said that a monster rally was likely, and sure enough, it arrived. Nevertheless, a one-week rally does not change the long-term trend. Typically, during bear markets, there are monster rallies, sometimes lasting longer than a few weeks, that lure many bulls back into the market. Then the market really plunges!
As I’ve said before, no one can predict what kind of bear market this one will be, but it’s guaranteed to fool a lot of investors and traders after it has run its course. This should be a very tricky trading experience, giving many losing investors the hope they can get all their money back. And just when it seems like all is well, it’s possible the worse is yet to come.
This is not a prediction, but based on past bear markets, the odds are good that more pain is coming in the future. This is the time to be on guard and bring your “A” game.
Bottom line: No one knows what the market will do this week. That depends on many factors, including whether the Fed continues to raise interest rates.