Bullish or Bearish? Week of June 27, 2022

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WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – RALLY. SPX skyrocketed from 3674 to 3911 last week, a phenomenal 237-point mind-blowing rally. If you had read this blog last week, you were prepared for this rally (and it could very well continue this week). Unfortunately, the market is still damaged. Even with the rally, the indexes are well below their moving averages on the daily chart. Note: Futures are lower on Sunday night (but that could change in the morning).

Long-term trend (WEEKLY CHART) – DAMAGED. The indexes are damaged on the long-term chart. Although not below its 200-day (that would be a disaster), SPX is below its 50- and 100-WEEK. Yes, there was a ray of hope last week but we are far away from the end of this bear market.

MACD (WEEKLY) = LOWER . The WEEKLY MACD is a lagging indicator, so it is reflecting the extremely negative market environment.

RSI: (S&P 500) @48.66 (DAILY) NEUTRAL.  RSI was the hero last week. It told us that the indexes were ridiculously oversold in the short-term, and it was right. It went from below 30 early in the week to a neutral 48.66. Now all bets are off. We must wait for extreme conditions (in either direction) and then trade in the OPPOSITE direction. (That’s one way to survive a bear market.)

Daily Intraday Volatility (VIX) = 27.23= ELEVATED: The VIX was also a hero last week. While investors and many money managers panicked, the VIX told us that professional option traders were not very worried, as reflected in an elevated but relatively tame VIX. Yes, some option traders are buying puts for protection, but not at extreme levels.

Comment: Sometimes you have to hold your nose and do what doesn’t feel right. Going long early last week seemed to be the wrong thing to do, but it certainly wasn’t. Fortunately, we had the indicators (RSI and VIX in particular) to guide us, and they did, especially RSI, which warned us that SPX was ridiculously oversold and due for a bounce. And bounce it did!

Most investors, who follow their instincts and guts, were certain the indexes were in a “death spiral.” Last week, hundreds of bearish articles and columns appeared. Instead, we had one of the strongest rallies in months, if not longer. One reason that trading (and investing) is so challenging is that it is not logical. Remember that: The market is not logical!

Sometimes you can make the most money doing the opposite of everyone else, even though it may feel “wrong.” Once again, that is why we rely on indicators and oscillators rather than our instincts, thoughts, or feelings.

This week is a big unknown. RSI is back to neutral, and VIX is not giving us any clues. The market is still damaged and needs time to mend. I could make a case for both the bulls and the bears, which leaves us unsure which way the market will go. It could go in either direction.

Bottom line: It’s a good time to wait and watch to see if the rally has legs, or if sellers will take advantage of the short-term rally.

Bullish or Bearish? Week of June 20, 2022

MY TWO NEWEST BOOKS WERE JUST RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  The best deal is a two-book gift set (while it lasts): Amazon:  https://amzn.to/39gSdeV

Did you get a chance to read my must-read column in MarketWatch last week? Here is the link: https://on.mktw.net/3N8tbMP

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – PLUNGING. SPX fell from 3900 to 3674, another gut-wrenching 226-point drop. I don’t have to tell you how bad it is out there, but there is also good news. We are so oversold that a mind-blowing rally is extremely likely, perhaps even during this week (more on this in the comment section below). SPX futures are higher by 1 percent on Monday night.

Long-term trend (WEEKLY CHART) – LOWER. SPX fell below its moving average on the weekly chart, an awful omen for the long term. SPX is still above its 200-week, but it’s aiming lower. There is huge support at the 200-week and is unlikely to break below it. However, if it does break through, then this will be a vicious bear market. My money is on it “not” breaking through (yet).

MACD (WEEKLY) = LOWER . The WEEKLY MACD is a lagging indicator, so it is reflecting the extremely negative market environment. MACD is below the zero line and below the 9-day signal line. 

RSI: (S&P 500) @31.77 (DAILY) EXTREMELY OVERSOLD.  SPX surprised many by falling so hard last week but now it’s extremely oversold. Based on RSI, expect a massive rally. Yes, RSI could drop below 30 on the daily chart, but that would make a snapback rally even more likely.

Daily Intraday Volatility (VIX) = 31.13= ELEVATED: The VIX is telling us there is mild concern but we are nowhere near the panic levels of 40 and above on the VIX. There is no doubt that many investors, even many money managers, panicked last week. But option pros have not (as reflected by the elevated but not extreme VIX). This is simply more evidence of a potential rally in the near term.

Comment: It was a brutal week for investors, many professional money managers, index holders, and anyone holding crypto currencies. Those unfamiliar with the market might be ready to throw in the towel about now. Many are going to sell into the Monday rally. Some TV commentators are even recommending that investors do that.

Although I cannot predict the market’s future, I read the indicators, and based on RSI in particular, we are due for a massive rally. The market is a funny beast: Just when everyone thinks there is little hope, and wants to throw in the towel, the market shocks everyone and rallies.

I can’t say for sure there will be a huge snapback rally in the next week or so, but the odds have increased. Obviously, geopolitical news or other problems could appear, but if nothing out of the ordinary occurs, expect a strong, sustained rally. Very few are expecting that!

On the other hand, if the expected rally fails by the end of the day or the next, then things are way worse than many of us think.

Bottom line: This was one of the worst weeks ever on Wall Street going back decades. For many, it felt like a slow crash, and it was, which is the worst kind of bear market. Speaking of bear markets, we are officially in one. Let’s see how long it lasts!

Bullish or Bearish? Week of June 13, 2022

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WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – LOWER. SPX fell from 4108 to 3900, an extremely painful 208-point drop. The daily chart is awful as we march closer towards a confirmed bear market. The good news, as you’ll read below, is that a short-term bounce is highly likely. Futures are PLUNGING on Sunday night. There is real fear in the stock market now. VIX is at 33 now: at 40 and above it will be a full-fledged panic.

Long-term trend (WEEKLY CHART) – LOWER. Because of the massive selloff last week, especially on Friday, SPX fell slightly below its 100-week moving average, a very negative sign. Even with all of the bad news swirling around, a snapback rally is possible this week. A lot depends on what the Fed says at their meeting, and how much they plan to raise rates.

MACD (WEEKLY) = LOWER . The WEEKLY MACD is a lagging indicator, so it is reflecting the negative market environment. MACD is below the zero line and below the 9-day signal line.

RSI: (S&P 500) @38.17 (DAILY) OVERSOLD.  The only ray of hope for the indexes is that SPX is oversold, although not at extreme levels yet (but it could get extreme on Monday). Nevertheless, a massive rally is highly likely so be on guard (even if it doesn’t last long).

Daily Intraday Volatility (VIX) = 27.75 = ELEVATED: VIX is telling us that option put buyers have reluctantly increased their put purchases but it is not yet at the panic stage. That could change on Monday.

Comment: Last week was extremely painful for the bulls, who had hoped for a bounce, one that did not appear. In fact, the opposite happened. The only good news, as mentioned above, is that SPX and the other indexes are in oversold territory, so a rally is likely this week. It could be a big one, so be prepared. (The Fed is expected to raise interest rates by 75 basis points, so anything less could generate temporary bullish enthusiasm.)

It’s hard for many investors to believe (because it’s been so long), but the indexes are headed towards a bear market (the Nasdaq is already in one). The strong rallies that fail, the technology massacre, nervous consumers, rising interest rates, and those massive selloffs — all are clues of a looming bear market.

Many newcomers don’t realize how insidious a bear market is, how those one-day rallies give investors hope, which is quickly dashed the next day. We probably have a lot lower to go, but this is important: it can take as long as a year to play out completely. If true, it will test the emotions and strategies of investors, many who vowed to buy and hold indefinitely. After a 13-year bull market, this particular bear market should be vicious.

I don’t tell you this to scare you or to ruin your day, but to prepare you for what is likely. Obviously, every bear market is different but this could be one of the bad ones. I hope not, but it’s likely.

This is a good time to study the market, review strategies, and identify which stocks you want to own at much lower prices. In a worst case scenario (i.e., black swan), many stock darlings are going to get smashed even more than now, some to unimaginable levels (think Netflix).

Savvy investors with extra cash will have the opportunity to pick up great stocks at bargain prices, but it won’t be easy. My advice: Trade small, starting with 10 or 20 shares, as you try to find a traceable bottom. A good place to start are with dividend stocks, especially the Aristocrats and Kings (25 and 50 years of raising dividends).

If you already own great stocks but are trapped in a losing position, if you still believe in the stock you own, you may be holding for a long time.

Bottom line: Expect a “Rocky Road” market environment, one I wrote about in one of my previous option books. Futures are plunging on Sunday night and the VIX is spiking: there is real fear right now.

Bullish or Bearish? Week of June 6, 2022

MY TWO NEWEST BOOKS WERE JUST RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy 

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – LOWER. SPX fell from 4158 to 4108, a relatively mild 50-point drop. Futures are flat on Sunday night but that could change in the morning.

Long-term trend (WEEKLY CHART) – LOWER. SPX is below it’s 50-week and is nearly even with its 100-week MA. This means that the long-term view is leaning bearish.

MACD (WEEKLY) = LOWER . The WEEKLY MACD is below the zero line and below the 9-day signal line. It’s not a pretty picture.

RSI: (S&P 500) @50.14 (DAILY) NEUTRAL.  RSI is right on the 50, which means SPX is neither oversold or overbought. We will have to wait for additional clues this week before taking a position.

Daily Intraday Volatility (VIX) = 24.79 = NEUTRAL: VIX is slightly elevated but nothing to write home about. We are not getting meaningful clues from the VIX right now.

Comment: After a spectacular one-week rally, SPX and the other indexes took a breather. If this was a bull market, the rally would have continued a lot longer than a week. This tells me we are in or about to enter a bear market. Unless there is a strong and lengthy rally, you must assume the worst (at least I do).

On the other hand, there is so much bearishness it’s possible we will get another surprise rally. However, even if there is a rally, it’s unlikely it will last for long. That simply confirms we’re in or about to be in a bear market.

If a bear market is confirmed (20 percent lower from its recent high), it will not be fun and games. It’s a good time to raise cash, to look for good stocks but also aim to buy them at much lower prices. Many value investors welcome a bear market because they can finally buy their darlings at reasonable prices.

On the other hand, a bear market is a difficult trading environment for most people, especially buy and hold investors. Look at Netflix, for example, dropping from $700 to $198 within six months.

There are other stocks like Netflix where its true value is extremely distorted. No one knows which stocks are obscenely overbought and which ones are trading at fair value. Unfortunately, in a bear market, even many great stocks get hammered. Expect and prepare for a difficult trading and investing environment.

Advice: If anyone claims to know what the market is going to do next, don’t believe them!