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 Market: https://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.