Bullish or Bearish? Week of August 29, 2022

MY TWO NEWEST BOOKS WERE RECENTLY 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  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – SELLOFF. As you probably know, After Fed Chair Powell spoke on Friday, SPX and the other indexes sold off strongly, falling from SPX 4228 to 4057, a painful 171-point drop, as well as a 1000-point Dow drop. Powell hinted that he was going to keep raising interest rates, and market participants were not pleased. Sunday night: Index futures are selling off strongly, but that could change in the morning.

Long-term trend (WEEKLY CHART) – SELLOFF. On the weekly chart, SPX stalled at its 50-week moving average and fell below its 100-week moving average.

MACD (WEEKLY) = MIXED. The WEEKLY MACD is well above the 9-day signal line but is still below the zero line. Once again, Mixed Signals. 

RSI: (S&P 500) @43.89 (DAILY) SLIGHTLY OVERSOLD. RSI was the hero last week as it gave the strongest signal the market was obscenely overbought. How things change! Now RSI is oversold, and if the negative futures hold in the morning, RSI could get even more oversold. Translation: It’s likely there will be a rally this week based on RSI, but no one can predict when it will occur or how long it will last.

Daily Intraday Volatility (VIX) = 25.56 ELEVATED: For weeks, the VIX was telegraphing that option buyers were unconcerned with the market. On Friday, they spilled their coffee and other things, as reflected in the higher VIX.

Comment: As I wrote above, RSI has been deadly accurate in its predictions although the timing is imperfect. If you follow RSI this week, it is telling us that the market will continue to sell off in the short term, but a rally is likely (as RSI moves towards 30). Note: RSI does not have to go below 30 for the market to reverse direction.

Federal Reserve Chairman Powell really shook things up by simply stating that interest rates may be raised as the Fed continues its rate hike course. Whether the Fed actually raises those rates is another issue, one that is unknown at this time.

As I’ve warned in the past, we are in for a volatile, rocky road environment for a few months, if not longer. If RSI is to be believed, a rally is extremely likely, but not immediately. Just be prepared for a reversal (and please don’t make large bets in this market environment).

Bottom line: It’s a trader’s market and an investor’s nightmare.

 

Bullish or Bullish? Week of August 22, 2022

MY TWO NEWEST BOOKS WERE RECENTLY 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  

Note: Check MarketWatch early in the week for an interview I did with a well-known TikTok influencer and financial author.

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – STALLED RALLY. Not surprisingly, the four-week rally stalled last week, falling from SPX 4280 to 4228, a 52-point pullback. The pullback took the other indexes lower, including crypto, which is below 22,000 again. As I’ll explain in more detail below, SPX went against the almighty 200-day moving average, and was repelled. Futures are lower on Sunday night, but that could change in the morning.

Long-term trend (WEEKLY CHART) – STALLED. On the weekly chart, SPX stalled at its 50-day moving average, and did not go higher.

MACD (WEEKLY) = MIXED . The WEEKLY MACD is well above the 9-day signal line but is still below the zero line. Mixed Signals. 

RSI: (S&P 500) @61.26 (DAILY) SLIGHTLY OVERBOUGHT. The hero of the week is RSI, which warned that the market moved up too far and fast. Last Monday, SPX rallied and RSI went as high as 73, an extremely overbought reading. Sure enough, SPX reversed direction the next day and the rest of the week, taking RSI to less extreme overbought levels.

Daily Intraday Volatility (VIX) = 20.08 COMPLACENT: The VIX is telling us that option buyers are not worried in the least about the market environment.

Comment: One of the reasons indicators are so useful is that they give you unbiased facts. As mentioned above, RSI was the hero because once again, it warned the market was extremely overbought. Add in the fact that on the daily chart, SPX smacked into its 200-day moving average, and couldn’t move higher. That tells me a rocky road is in the market’s future.

This week should be more volatile than usual (on certain days). Traders are waiting for Fed Chairman Powell’s comments at the annual Jackson Hole economic pow-wow. Powell may or may not give hints as to future rate hikes, which should affect the market.

Advice: It’s dangerous to make big financial trades when the Fed is going to speak. It’s akin to gambling, not trading, when taking large positions before a market-moving event.

Bottom line: Wait and see what the Fed has to say about interest rates, or if there is any other financial news.

Bullish or Bearish? Week of August 15, 2022

MY TWO NEWEST BOOKS WERE RECENTLY 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  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – HIGHER. There was another spectacular rally last week (four weeks in a row), from SPX 4145 all the way to 4280, a 135-point rise. It surprised a lot of traders, including many professionals. As a result, the short-term trend has shifted to strongly bullish. Sunday night futures are flat to slightly lower, but that could change in the morning.

Long-term trend (WEEKLY CHART) – HIGHER. On the weekly, SPX is making a play for its 50-week moving average, and if successful, we will have to re-evaluate whether this is still a bear market.

MACD (WEEKLY) = MIXED . The WEEKLY MACD is well above the 9-day signal line but is still below the zero line. Mixed Signals. 

RSI: (S&P 500) @71.67 (DAILY) EXTREMELY OVERBOUGHT.  There is a price to be paid for a months-long spectacular rally, and that is RSI. It is telling us that SPX is extremely overbought in the short term (RSI above 70). RSI has been remarkably accurate in the past for identifying overbought conditions and future selloffs. This is a warning sign.

Daily Intraday Volatility (VIX) = 19.53= COMPLACENT: The VIX is telling us that option buyers are not worried about a selloff, which is when you should be worried!

Comment: The last month has been amazingly bullish for the market, and especially for SPX. I wish I could say that all is well on Wall Street but I have learned the hard way to read the clues, and RSI is giving us a strong one. RSI is saying the market is extremely overbought and a reversal is likely, although no one can say when.

Bearish analysts are saying this rally is a “dead cat bounce,” i.e., a bear market bounce. On the other hand, bullish analysts are saying this is a “new bull market.” It’s too early to say who is right, so step right up and place your bets. It could go either way this week.

Some large retailers such as Target, WalMart, and Home Deport are reporting earnings this week. Their results should influence the market, at least for that day.

Bottom line: It’s too early to say whether we are still in a bear market or if a new bull market has evolved. As mentioned earlier, RSI is flashing a warning sign.

Bullish or Bearish? Week of August 8, 2022

MY TWO NEWEST BOOKS WERE RECENTLY 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  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – FLAT. After a spectacular two-week rally, SPX stalled last week, rising from 4131 to only 4145, a mild 14-point rally. The jobs report was excellent last week but another rate hike is coming next month from the Federal Reserve (or so they are hinting). Nevertheless, SPX is still below its 200-day MA, and as long as it remains below, be cautious. Note: Futures are slightly lower on Sunday night (but that could change in the morning). 

Long-term trend (WEEKLY CHART) – POSITIVE. On the weekly, SPX is still above its 200-week MA (but below its 50-week and even with its 100-week), a mildly positive long-term development.

MACD (WEEKLY) = MIXED . The WEEKLY MACD rose above the 9-day signal line but is still below the zero line. Mixed Signals. 

RSI: (S&P 500) @64.48 (DAILY) SLIGHTLY OVERBOUGHT.  RSI is still overbought but not at extreme levels. 

Daily Intraday Volatility (VIX) = 21.15= COMPLACENT: The VIX is still low, which reflects the no-fear, What, Me Worry? market environment. 

Comment: After a three-week rally, the SPX is due for a rest, and perhaps a pullback. Even with the positive jobs numbers (it was a shocker to the upside), the rising interest rate environment “should” put a damper on stocks over the next month. In reality, no one knows how the market will react to the news.

If you’re a contrarian trader, you will either be in cash or looking to trade against the stock market (with put options, hedges, or inverse ETFs). If you’re a long-term investor, you just keep putting a set amount of money in an index fund (or stock) each month no matter if the market is up or down. Hint: No matter what strategy you use, be sure to “pay yourself first” by keeping an emergency cash fund. This is simple but very important advice.

I just read that Berkshire Hathaway, while operating profits jumped by 39 percent, Warren Buffett’s conglomerate lost $53 billion on its investments last quarter. Ouch! Even the Wizard of Wall Street can lose money in this market. (Source: CNBC).

I dislike repeating myself but this is going to be a tricky market environment at least until November, when we should learn the market’s true direction. Until then, volatility is low so it’s easy for certain hedge funds with high speed algos to “help” move the market higher or lower.

Bottom line: Be careful out there!

Bullish or Bearish? Week of Aug. 1, 2022

MY TWO NEWEST BOOKS WERE RECENTLY 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  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – RALLY. SPX exploded higher, from 3961 to a mind-blowing 4131, a spectacular 170-point rally. This was the second huge rally in a row, but don’t get fooled: We are still in a bear market. SPX is above its 50-day MA, and even with the 100-day, but below its 200-day MA. It must rise above its 200-day before the coast is clear. Note: Futures are lower on Sunday night (but that could change in the morning).

Long-term trend (WEEKLY CHART) – STRUGGLING. On the weekly, SPX is above its 200-week but still below its 50-week but even with its 100-week. Opinion: We had an amazing two weeks but we are not out of the woods yet.

MACD (WEEKLY) = MIXED . The WEEKLY MACD is struggling to rise above the 9-day signal line and it’s still below the zero line. Mixed Signals.

RSI: (S&P 500) @65.90 (DAILY) SLIGHTLY OVERBOUGHT.  RSI is overbought but not at extreme levels.

Daily Intraday Volatility (VIX) = 21.33= COMPLACENT: The VIX keeps falling, which reflects the no-fear, What, Me Worry? market environment.

Comment: It was a spectacular two weeks, the best July since 2020. Considering that the Fed signaled that interest rates rising by another 75 basis points made the rally even more amazing. But now we are back to reality.

Many experts are predicting the two-week rally will have legs and last the rest of the summer. Be suspicious of predictions like this because no one knows what the market is going to do this week, let alone this month.

It’s true the rally caught a lot of people off guard as pessimism reached extreme levels. People are still worried about inflation, recession, and a falling stock market, as well as the crypto plunge. As often happens, the market does the opposite of what “everyone” thinks. In a bear market, it can get even more confusing.

If you believe the technical definition of a bear market (i.e., 20 percent below its recent high), then you may believe that the bear market is “over” (as some are proclaiming). Don’t believe them.

Until SPX and the other indexes rise above its 200-day MA, the bear market continues. Bear market are tricky animals so it’s easy to get fooled. This is not the time to plunge into the market but instead, use strategies such as dollar cost averaging or increase cash.

By the way, a few weeks ago, if you had read my interview and followed the advice from trader Howard Kornstein, you’d be looking at huge profits. All of the stocks he recommended made substantial gains over the last two weeks. Now, however, it’s a different ball game.

For example, RSI is saying the market is overbought after a spectacular two-week run. Is this the time to join the buying frenzy and buy after this rally? In my opinion, that would be a risky move. Sometimes you have to be contrarian to survive.