Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.
RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk
My latest MarketWatch column (4/6/2015): http://goo.gl/85ErSa
AAII survey (4/8/2015)
28.7% Bullish. 47.2% Neutral. 32.0% Bearish.
Bearish: If sentiment is over 50% bullish.
Bullish: If sentiment is over 50% bearish.
Investors Intelligence (4/7/2015)
50.4% Bullish. 14.2% Bearish.
Bearish: If sentiment is over 60% bullish. ( Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)
Bullish: If sentiment is over 60% bearish.
VIX: 12.58 (on 4/10/2015)
Bearish: Less than or near 12.
Bullish: Greater than or near 40.
RSI (S&P 500): RSI is at 57.20 (on 4/10/2015)
Overbought (i.e. Bearish): When RSI rises to 70 or above.
Oversold (i.e. Bullish): When RSI falls to 30 or below.
Note: RSI can remain overbought or oversold for extended time periods.
Moving Averages (daily): The S&P is above its 50-, 100-, and 200-day moving averages and pointing up.
Bearish (Short-term Downtrend): Index crosses under 50-day, 100-day, or 200-day MA.
Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.
MACD (S&P 500): MACD is above its zero line but even with its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)
Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.
Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line.
Bonds: U.S. 10-year yield is at 1.95% (on 4/10/2015).
Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).
Analysis: The VIX got frothier but sentiment surveys pulled back a little. The trend is up based on moving averages, and although the market showed topping behavior, it rallied to 2100 on the S&P and over 18,000 on the Dow. We’ve been here before. Perhaps we’ll soon see what this market is really made of. If it’s a strong bull market, it should climb higher. If it’s in the danger zone, it will retreat once again. It’s impossible to predict which way the market will go this week.
Opinion: Although I still believe the market is in the danger zone and that it will end badly, I cannot predict when this will happen. It was interesting to read that many influential and successful investors and traders have been warning of a market correction or crash. I might have been early but it’s good to know that others see many of the same red flags.
A few who have given recent warnings include legendary hedge fund manager Julian Robertson, former CEO of Pimco Mohamed El-Erian, hedge fund billionaire Paul Tudor Jones, hedge fund manager Andy Redleaf, billionaire investor Carl Icahn, billionaire investor Sam Zell, hedge fund manager Cripsin Odey, and famed money manager Stan Druckenmiller (who has been warning of a financial catastrophe for a while).
Thanks to the Zero Hedge website, we have the fascinating transcript of Druckenmiller’s speech to the Lone Tree Club in North Palm Beach, Florida. Below is the shortened version, but the full transcript appears at the end of the webpage. Druckenmiller is warning of a huge correction, although he is not shorting (in January). Why not? Because he can’t predict when the wheels are going to fall off, but he knows they will.
Here is the shortened transcript (1/18/2015):
It could be two months, a year, or even longer when the markets unravel, and when they do, it will catch most investors by surprise. I personally believe we are closer to a correction than not, but it’s best to watch and wait for stronger signals. Right now, the market is vulnerable to selling pressure but it will take an unknown catalyst to cause most investors to pull the sell lever. At the moment, investors are blissfully making money without a care in the world. As you know from studying market history, that is exactly when you should be most on guard.
I personally sleep very well at night knowing I am not buying into this market at all-time highs. Nevertheless, it’s not easy being on the sidelines while others are making money (especially if you are managing money for impatient clients).
Bottom line: Let’s see how the indexes perform this week, and if they can surpass their all-time highs. I am looking to see if 2100 holds on the S&P 500.