Bullish or Bearish? Week of October 31, 2022

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)  SHORT-TERM RALLY:  SPX made another phenomenal run on Friday (+828 points on the Dow), taking SPX from 3762 to 3901 during the week, an impressive 139-point rally. On a radio program a few weeks ago, I said that SPX could take out 4000 before the end of the year, and it certainly is possible. (Read my comments later on what could happen if it does.) On Sunday night, the futures are FLAT, but that could change in the morning.

Long-term trend (WEEKLY CHART) – SHORT-TERM RALLY. The SPX 200-week bounced off of its 200-WEEK moving average. which acted as support. As long as it’s above its 200-week, then the market is temporarily in the clear, even while certain sectors and stocks (especially technology), get mauled. Facebook lost over 20 percent in one day (ouch!).

MACD (WEEKLY) = HOPEFUL. The WEEKLY MACD is below the zero line but trying to rise above the 9-day signal line. Not there yet, however.

RSI: (S&P 500) @59.49 (DAILY) SLIGHTLY OVERBOUGHT. RSI gives a lot of clues, and right now, it’s telling us the market is more overbought than oversold. As you know, markets can get extremely overbought or oversold before reversing.

Daily Intraday Volatility (VIX) = 25.75 SLIGHTLY ELEVATED: After two strong weekly rallies, VIX is coming back down to Earth, that is, fear has lessened considerably.

Comment: It was another wild week. On some days, the technology sector got creamed, especially Meta (i.e., Facebook), as well as the Nasdaq index. On Friday, all was well again. We will soon find out if this two-week rally can make it three in a row. That would be something (especially as the Fed keeps raising interest rates).

As mentioned earlier, I said that SPX could hit 4000 before year end. However, since I believe this is still a bear market, if the market does rally that high (or close to that level), prepare for a spectacular reversal.

It may be hard for many to believe, but this rally has all of the characteristics of a bear market rally. It’s also possible I’m wrong and the bear market is over. On the other hand, if I’m right, the worst is yet to come. Judging by the elevated VIX, many option traders are cautious.

Let’s hope we get that Christmas rally even as the Fed vows to keep raising interest rates. Rates are already over 7 percent and headed to 8 percent. Something has to give, and that should be housing prices. It would not be surprising if stocks followed housing lower.

Bullish or Bearish? Week of October 24, 2022

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)  SHORT-TERM RALLY:  SPX rallied strongly on Friday (and on previous days), taking SPX from 3583 to 3762, a phenomenal 179-point gain. Unfortunately, SPX is still below its moving averages, which means it’s still a bear market. On Sunday night, futures are flat, but that could change in the morning. 

Long-term trend (WEEKLY CHART) – SHORT-TERM RALLY. The SPX 200-week moving average is still acting as a support level. However, SPX is below its 50-week and 100-week moving averages. The 200-week is the key: If it breaks below, all bets are off. For now, the 200-week is holding.

MACD (WEEKLY) = PROBLEMS. The WEEKLY MACD is still reflecting market problems, as it’s below the 9-day signal line and zero line.

RSI: (S&P 500) @51.14 (DAILY) NEUTRAL. Last week, RSI flashed an oversold signal, and it was right. After a strong rally last week, RSI is back to neutral. Translation: RSI is telling us the market could go in either direction this week.

Daily Intraday Volatility (VIX) = 29.69 ELEVATED: Even with the SPX rally, VIX is elevated, which means the nervousness has not completely disappeared.

Comment: The blow-your-socks-off rally took a lot of traders by surprise (especially short-sellers). As mentioned above, until the indexes rise well above its three main moving averages on a daily chart, the bear market marches on.

As I wrote in my MarketWatch article last week, these strong rallies are typical in a bear market. That’s why we’re only in Stage 4 of the bear market (out of 9 stages). We have a long way to go before this bear is over.

It’s possible the rally continues for a while longer, but if it’s a true bear market, the rally will eventually fail. Be prepared for that possibility.

Bottom line: These are strange times so expect volatility to continue at least until the end of the year.

Bullish or Bearish? Week of October 17, 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) – DOWNTREND:  SPX rallied and sold-off during the week, ending in a mild 53-point selloff from 3639 to 3583 (erasing the gains from last week). The SPX daily chart is as ugly as can be (below all three moving averages). Support is at the 200-WEEK moving average (more on this below). On Sunday night, futures are higher, but that could change in the morning.

Long-term trend (WEEKLY CHART) – DOWNTREND. The SPX 200-week moving average is support. Although SPX fell slightly below its 200-week MA on Friday, the odds are good it will rise above it on Monday (especially if the futures hold). If SPX drops well below its 200-week MA this week, then all bets are off – it could get even uglier.

MACD (WEEKLY) = DOWNTREND. The WEEKLY MACD reflects the awful trading environment, with MACD below its signal line and zero line.

RSI: (S&P 500) @38.04 (DAILY) OVERSOLD. This feels like deja-vu. Once again, RSI is oversold, so the odds are high there will be a rebound this week. Although RSI is oversold, it’s not at extreme levels yet (below 30). A rebound in the indexes is still quite possible.

Daily Intraday Volatility (VIX) = 32.02 ELEVATED: VIX remains at higher than normal levels, but not at extreme levels (which would reflect panic). VIX is telling us there is a heightened sense of nervousness, but it’s under control.

Comment:  If you are feeling as if the market is on a wild roller coaster ride, you are correct. There are these mind-blowing rallies followed by severe selloffs. This is the nature of bear markets, and unfortunately, no one knows when it will end.

The easy days of weeks and months of rallies are over for now. If there is a two-day rally, that is excellent. Most of the time, rallies are one-day wonders.

As mentioned earlier, SPX is still above its 200-week moving average, the only positive sign in a sea of red. Although not many are mentioning the word, “bear market,” we are in one, so trade and invest accordingly. (Not everyone agrees we are in a bear market. They want to see SPX fall below its 200-week MA first).

Yes, we could have a monster rally that brings SPX back above its three major moving averages, but until then, assume that the roller coaster ride is going to continue.

Bullish or Bearish? Week of October 10, 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) – FAILED RALLY:  As expected, last week was WILD. First. the market rallied by 6 percent in two days. Then it sold off (more on this in the comment section). SPX ended the week with a mild 54-point rally, rising from 3585 to 3639. Because the rally ultimately failed, the daily chart is still dreadful. Futures are lower on Sunday night, but that could change in the morning.

Long-term trend (WEEKLY CHART) – DOWNTREND. SPX spiked above its 200-week moving average early in the week, but then sold off later in the week. It is now slightly above its 200-week moving average. As mentioned last week, if SPX drops below its 200-week MA (a support level), it will not be pretty.

MACD (WEEKLY) = DOWNTREND. The WEEKLY MACD continues to fall, as MACD dropped below both the 9-day signal line and zero line. 

RSI: (S&P 500) @37.73 (DAILY) OVERSOLD. RSI flashed a buy signal when it dropped well below 30 last week. As if on cue, the indexes rallies strongly, bringing RSI back to even. After last Friday’s selloff, however, RSI is slightly oversold again. If it drops to 30 or below, it could be a short-term buying opportunity.

Daily Intraday Volatility (VIX) = 31.36 ELEVATED: All of this volatility is playing havoc with VIX. It plunged early in the week, then rose later in the week as nervous option traders added more puts to their option positions.

Comment:  Last week, I asked: “How long will the rally last?” As it turned out, two days. Once again, RSI was so oversold (well below 30) that a monster rally was inevitable, and SPX did not disappoint. As mentioned earlier, SPX rose by 6 percent in two days, a spectacular achievement. Then, the indexes sold off (financial experts are blaming it on a strong employment report, which in the wacky world of Wall Street, is a negative).

It’s so obvious we are in a bear market. Every strong rally, even a monster rally, runs out of steam. This is how it’s going to be for a while, maybe for months: Rallies followed by selloffs.

Even more dangerous, one day we may have a sustained rally that brings the indexes back above its moving averages. Just when everyone proclaims the bear market is over, the indexes plunge even harder. This is a real possibility.

Since every bear market is different, it’s wise to read about them so you know what to expert (I have a MarketWatch column coming out next week that describes the 9 stages of a bear market. Unfortunately, we are only in the 4th stage.)

If you want to know what to do, although I can’t give specific advice, I can say that the following are good ideas:

  1. Dollar cost average into index funds if a long-term investor.
  2. Buy CDs and T-bills, which are paying near 4 percent, but check to confirm the rate.
  3. Raise cash for protection, but also be ready to buy when the bear market ends (although it’s nearly impossible to time the bottom).

Bullish or Bearish? Week of October 3, 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) – MAJOR SELLOFF. The indexes plunged again last week, with SPX dropping from 3693 to 3585, a painful 108-point pullback. The market had one good rally during the week, but reversed the next day. The daily chart is downright ugly, falling well below its 50-, 100-, and 200-day moving averages. Futures are higher in the morning, which should translate to a strong opening. The question is: how long will it last?

Long-term trend (WEEKLY CHART) – DOWNTREND. SPX is resting on its 200-week moving average, and if support doesn’t hold, it will get a lot uglier. My money is on support holding, followed by a rally (this is not a prediction, only an educated guess).

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

RSI: (S&P 500) @28.47 (DAILY) EXTREMELY OVERSOLD. For the second week in a row, RSI fell below 30, which reflects extreme oversold conditions. A monster rally is likely but RSI does not tell you when. Hold on to your seatbelts as this is an important week. Put another way, RSI is warning of a reversal to the upside.

Daily Intraday Volatility (VIX) = 31.62 ELEVATED: The VIX is telling us that fear has finally creeped into the marketplace, as option buyers are protecting their portfolios with puts. At 30 and above, option traders are nervous. (At 40 or above, it reflects extreme fear that results in a tradeable bottom.)

Comment: Many investors are dealing with the selloff and bear market by refusing to look at the market or their statements. That is one way of dealing with the pain (by pretending it’s not there). Another way is to use indicators and clues to identify a short-term bottom.

Based on RSI, a monster rally should occur shortly. Unfortunately, the rally will probably not last for long. As you have seen in the last few months, every rally has been followed by a selloff (this occurs when many fund managers dump stock positions to salvage gains or limit losses).

By now, I’m sure you realize this is a bear market, and they are tricky animals. Many investors believe the worst is over, especially if there is a short-term rally. Unfortunately, if this follows a traditional bear market, the indexes have much further to fall.

Hopefully, you are diversified and also looking at fixed income products such as CD’s paying 4 percent or T-bills paying 3.85 percent. These products are not perfect but they are ideal in a high-risk trading and investing environment.

Bottom line: We are in a bear market, and they are not fun. They also last a relatively long time, so keep your seatbelts fastened.