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
Here is my latest MarketWatch column: http://goo.gl/eFQq3J
AAII survey (2/11/2015)
40.0% Bullish. 20.3% Bearish.
Bearish: If sentiment is over 50% bullish.
Bullish: If sentiment is over 50% bearish.
Investors Intelligence (2/10/2015)
52.5% Bullish. 15.2% 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: 14.59 (on 2/13/2015)
Bearish: Less than or near 12.
Bullish: Greater than or near 40.
RSI (S&P 500): RSI is at 61.70 (on 2/13/2015)
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 is pointing up.
Bearish (Short-term Downtrend): 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 and above 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 2.02% (on 2/13/2015)
Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).
Analysis: If you look strictly at the market indicators, the trend is up. However, if you look a little deeper at not just at basic indicators but market breadth, valuations, and money flow, you see conflicting signals. Sentiment is not at extremes but that will change if the market gets extreme. Bottom line: The indicators are telling us the market could go either way this week, although the trend is positive.
Opinion: Last week surprised me as I thought the market was close to topping out and running out of gas. Although the indexes weren’t moving on huge strength, they also didn’t plunge. So here we are again at Dow 18,000 and S&P 2,000. If this is a true rally, then the indexes will climb higher on strong volume. Let’s see if that happens.
It is impossible to predict what the market will do during this shortened week. The futures are down Monday night, perhaps leading to an early retreat. The Greek talks didn’t work out so well, and they are still fighting in Ukraine. On the plus side, the market keeps going up, ignoring bad news.
Bottom line: Be prepared for anything. It’s possible that international conflicts will negatively affect the market this week. However, the market might surprise to the upside. Sit back and watch because it could go either way. Don’t forget that Janet Yellen speaks next week.