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 (4/1/2015)
35.4% Bullish. 32.0% Bearish.
Bearish: If sentiment is over 50% bullish.
Bullish: If sentiment is over 50% bearish.
Investors Intelligence (3/31/2015)
54.5% 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: 14.67 (on 4/3/2015)
Bearish: Less than or near 12.
Bullish: Greater than or near 40.
RSI (S&P 500): RSI is at 47.48 (on 4/3/2015)
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 slightly below its 50-day moving average and slightly above its 100-day moving average.
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 below its red 9-day signal line and pointing down. (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 1.90% (on 4/3/2015). Note: Bonds continue to party.
Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).
Analysis: At first glance, the clues and indicators appear to be neutral. On the other hand, because of the poor jobs numbers on Friday, the futures are pointing down, which could lead to an ugly week. In addition, a Bankrate survey came out last week, and 85% of professional Wall Street investors believe the market will be higher next year than this year. These are the type of numbers you see at market tops. In addition, according to the latest ICI numbers, investors have been panic buying equity ETFs. There was an increase of 58 billion dollars in domestic equity ETF purchases for a total of 1.28 trillion dollars. All of this tells me that professional investors are afraid of missing out of this bull market, and are pouring money into the stock market. Conclusion: Red Alert.
Opinion: I just finished a column for MarketWatch (see link above). In the column, I laid out the facts, and they are not pretty. The ugly job numbers, the high sentiment from Wall Street pros, the blowoff top on March 20, and the weak rallies all point to a rocky April.
Of course, beginning on Monday morning, a rush of buyers will enter the market and try to limit the damage. Look for how the market closes at the end of the day, and if it is on higher volume. If the market plunges on higher volume, that is a bearish sign. If not, the week might be saved.
The longer it takes for the market to top out, the more severe the downturn. If the pros are right and the bull market still has legs, then the S&P must climb above 2100, which it hasn’t done in a while. In addition, the indexes must climb above their moving averages and stay above. We’re not seeing that right now, which is why this week is so important.
As I’ve said for months, this is the time to move some money to cash, to protect your profits, and not participate at these all-time highs (my opinion only). If the indexes could surpass the all-time highs on strong volume (and a strong NYSE Tick), I’d be impressed. So far, this hasn’t happened. No matter how much spin you hear (i.e. any pullback is a buying opportunity), be very careful this month. If I’m right, April Fool’s Day will last longer than a day.