Bullish or Bearish? Week of September 26, 2022

MY TWO NEWEST BOOKS WERE 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. The indexes plunged again last week, with SPX dropping from 3873 to 3693 during the week, another mind-boggling 180-point rout. There is a little good news mixed in with the sea of red. The daily chart is downright ugly, one of the worst in recent history. On Sunday night, futures are flat to slightly lower as the market tries to catch its breath. Futures could change direction in the morning, and they probably will.

Long-term trend (WEEKLY CHART) – DOWNTREND. Little did I know that SPX would plunge to its 200-week moving average in one week! The odds are good the indexes will hold at 3585. If not, then it will get uglier than anyone can imagine. My money is on support holding.

MACD (WEEKLY) = DOWNTURN. The WEEKLY MACD is reflecting trouble, as MACD breached both the 9-day signal line and zero line.

RSI: (S&P 500) @28.90 (DAILY) EXTREMELY OVERSOLD. The odds are very good there is going to be a monster rally in the near future (based on RSI). I haven’t seen RSI numbers this low in a long, long time. As always, you can’t use RSI to time the market but a snapback rally is coming, so be prepared. Yes, the indexes could keep falling a bit longer but one of these days the shorts are going to get smashed.

Daily Intraday Volatility (VIX) = 29.92 HIGHER: The VIX has been creeping up as the market has been falling. Option traders are finally waking up to the fact that it’s a bear market. When VIX is at 30 and higher, there is fear. At 40 and above, it’s panic. Note: VIX is a contrarian indicator but still should not be used to time the market, only to gauge its mood.

Comment: I don’t have to tell you how ugly the chart looks. Many traders are buying the dip on the way down, a dangerous strategy that should work eventually, as long as you trade or invest small.

Fed Chair Powell warned he was going to keep raising rates, and he kept his word. Many blame him for “juicing” the market by keeping interest rates too low for too long. Now they are blaming him for taking away “the punch bowl” too aggressively, causing pain in stocks, housing, and cryptocurrencies. It’s not a pretty picture.

As I wrote earlier, a snapback rally is coming, although no one knows when. We are in a bear market although the financial media doesn’t mention it much. (Technically,, we’re “almost” in a bear market.) Perhaps everyone is waiting for a bell to ring!

In the past, I’ve given advice about what to do — from staying on the sidelines to dollar cost averaging. Traders may try to buy the dip but this is a dangerous strategy. Inexperienced traders should trade small while investors should DCA into index funds. Eventually, bear markets end, but only after maximum pain has been inflicted.

If we do get a monster rally soon, the odds are good the rally won’t last long, so be prepared for a volatile market. The chart looks about as ugly as can be but once again, this is the time to think about buying rather than panic selling.

Good luck out there and be sure to follow your rules. Trading should be lighter on Monday due to the Jewish holiday. The Fed is running the show and Powell seems determined to raise rates ONE MORE TIME. (Eventually, Powell may get his wish and slow inflation, but it’s likely he’ll take stocks and housing down with him.)

Bullish or Bearish? Week of September 19, 2022

MY TWO NEWEST BOOKS WERE 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. The indexes took a negative turn last week, especially SPX, which fell from 4067 to 3873, a disastrous 193-point rout. SPX is once again below its major moving averages, including a break below the important 4,000 support level. In two weeks, we went from hugely overbought to oversold (according to RSI). In a nutshell: it’s ugly. Futures are LOWER on Monday morning.

Long-term trend (WEEKLY CHART) – DOWNTREND. SPX is below its 50- and 100-week but still above its 200-week, the only ray of hope in a world of pain. The 200-week is at 3,579, and if that is violated sometime in the future, it will get even uglier. We have a ways to go before we hit those levels.

MACD (WEEKLY) = DOWNTURN. The WEEKLY MACD took a turn for the worse, as even the 9-day signal line reversed direction.

RSI: (S&P 500) @37.72 (DAILY) OVERSOLD. If you want a ray of hope, it will be found in RSI, which has been remarkably accurate in predicting overbought and oversold conditions (especially oversold). As RSI heads towards 30, be prepared for another snapback rally. Unfortunately, the snapback rallies haven’t lasted long, one of the reasons I am certain we are in a bear market.

Daily Intraday Volatility (VIX) = 26.30 HIGHER: The VIX rally reflects the increased purchases of put options, which means a touch of fear entered the hearts and minds of option traders.

Comment: Last week was an ugly one, and it was not a surprise. As you recall from last week’s comment, I recommended sitting and waiting. Those who bet against the market (or against any old stock) probably did well. This is no place for the inexperienced, and if you are, then trade cautiously.

As I wrote above, I am certain we are in a bear market, and it will take a long while to play out (bear markets typically last 14 to 18 months). I can make an educated guess that if this is a typical bear market, SPX and the other indexes will drop another 20 to 22 percent after the smoke has cleared. There will be many short-term rallies along the way, fooling those who know little about bear markets. Suggestion: Read my book, How to Profit in the Stock Market, to learn more about bear markets).

The Fed kept interest rates ridiculously low for years, and now they are warning they will continue to raise interest rates. According to a number of market professionals, if the Fed keeps raising rates as promised, they will crash the stock and housing market. I personally have no idea if this is true but I do know the higher interest rates will inflict more pain on investors and home buyers.

These are uncertain times so expect more trouble before it’s over. The old rules still apply, and that means trading or investing small, take the time to study bear markets, use dollar cost averaging tactics, and if you are losing money trading, stay on the sidelines. This is not an easy trading environment!

The Fed is meeting this week so it’s guaranteed to get volatile before and after the meeting. If the Fed makes an aggressive move with interest rates, it will get extremely volatile (and unpredictable depending on what Powell says).

Bullish or Bearish? Week of September 12, 2022

MY TWO NEWEST BOOKS WERE 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. The indexes had a relief rally last week, including SPX, which rose from 3924 to 4067, an impressive 143-point rally. Readers of this blog were not surprised because the market was extremely oversold (as revealed by RSI). SPX was able to rise above its 50-day moving average, but it has a long way to go before it’s out of the woods. Futures are flat on Sunday night.

Long-term trend (WEEKLY CHART) – IMPROVED. SPX improved a bit last week on the weekly chart but it’s still below its 50-week moving average.

MACD (WEEKLY) = IMPROVED. The WEEKLY MACD has improved but it’s still giving mixed signals.

RSI: (S&P 500) @50.94 (DAILY) NEUTRAL. RSI made the most dramatic improvement last week, rising from extremely oversold levels to neutral. As you know, when RSI drops to or below 30, a rally is typically coming, and RSI performed brilliantly. Indicators and oscillators aren’t perfect, but they are better than “playing it by ear” or relying on your “gut.” Last week, RSI warned us that a snapback rally was coming, and it did not disappoint.

Daily Intraday Volatility (VIX) = 22.79 LOWER: The low VIX reflects the complacency that has once again overtaken Wall Street.

Comment: I’ll keep this short and sweet. The Fed says it will be raising interest rates by another 75 basis points, which should be another blow to the housing and stock markets (if they do as they say). It appears the Fed wants a recession to help tackle inflation, and they will probably get their wish. As a result, the stock market is going to be volatile for the rest of this year.

It’s possible the rally that started last week will continue, but I wouldn’t bet money on it. In reality, we are waiting to see if the rally has legs or if there will be another failed rally. Right now, no one can say for sure, so the best advice is to SIT AND WAIT.

Bullish or Bearish? Week of September 5, 2022

MY TWO NEWEST BOOKS WERE 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. It was another dreadful week for the indexes, the third in a row. SPX fell from 4057 to 3924, a painful 133-point drop while breaking SPX 4,000. The previous month’s rally can be characterized as a “bear market rally,” which means we are still in a bear market (to be precise, SPX is 18 percent lower from its 52-week high). SPX is below all three moving averages on the daily chart, an ominous sign. Note: Futures are flat on Monday night, but that could change in the morning.

Long-term trend (WEEKLY CHART) – LOWER. SPX is well below its 50- and 100-week moving averages but still above its 200-week moving average.

MACD (WEEKLY) = MIXED. The WEEKLY MACD is above the 9-day signal line but turning lower. It remains well below the zero line, a negative reading.

RSI: (S&P 500) @35.23 (DAILY) OVERSOLD. RSI is telling us the market is oversold and is due for a snapback rally. Unfortunately, RSI cannot be used to time the market but RSI 35 is a strong clue the selling has reached strong oversold levels.

Daily Intraday Volatility (VIX) = 25.47 ELEVATED: The VIX remains elevated but not at extreme levels. The falling market has gotten the attention of option traders, who are slowly accumulating more put options.

Comment: The three-week selloff is a clue that we are still in a bear market, which means the previous rally last month was a “bear market rally.” The Fed made it clear it will be tightening in the near future (i.e., QT, or quantitive tightening). Inflation still remains, which affects company profits and consumer spending habits.

Even though a short-term rally is likely in the near term, 2022 is almost guaranteed to be a challenging year. Of course miracles do happen, but based on the odds (and previous bear markets), plan for a bear market environment.

Unfortunately, many investors, traders, and money managers have never experienced a bear market. That should cause volatile market environments as panicked traders, even many pros, make emotional trading decisions.

Bear markets are difficult to manage, one of the reasons I’ve stressed trading with less money or not at all. Continue dollar cost averaging if you own index funds. Some readers have written me to say they’ve done well selling covered calls (and taking their profits quickly).

Bottom line: Prepare for and expect a rocky, volatile trading environment. Based on RSI, a rally is likely, and if this is a true bear market, that rally will fail. This is a good time to study and learn while preparing to buy favorite stocks at much lower prices. This is a four-day week, which are historically tricky.