Each weekend, I analyze market conditions using sentiment and technical indicators. The goal is to determine if we are in a bullish, bearish, or sideways market environment. *
JUST RELEASED: Understanding Options (McGraw-Hill, 2E) and Understanding Stocks (McGraw-Hill, 2E): http://bit.ly/1bl0ZNk
My latest MarketWatch article (January): http://on.mktw.net/1bEjAEc
AAII survey (1/8/2014)
43.6% Bullish. 25.0% Bearish.
Bearish: If sentiment is over 50% bullish.
Bullish: If sentiment is over 50% bearish.
Investor’s Intelligence (1/8/2014)
60.6% Bullish. 15.2% Bearish.
Bearish: If sentiment is over 60% bullish.
Bullish: If sentiment is over 60% bearish.
CBOE Equity Put/Call Ratio: .53
Bearish: Less than or near .50 is bearish (more call options are being bought).
Bullish: Higher than or near 1.0 is bullish (more put options are being bought)
Bearish: Less than or near 12.
Bullish: Greater than or near 40.
Moving Averages (daily): S&P 500 is above its 50-day moving average, its 100-day and 200-day MA, and pointing up slightly.
Bearish: Index crosses below 50-, 100-, or 200-day MA.
Bullish: Index crosses over 50-day, 100-day, and 200-day MA.
MACD: MACD is above the zero line, and 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 9-day signal line. MACD line crosses above zero line.
RSI: RSI is at 64.03 (on 1/10/2014)
Overbought: When RSI rises to 70 or above.
Oversold: When RSI falls to 30 or below.
Note: RSI can remain overbought or oversold for extended time periods.
Bonds: U.S. 10-year yield is at 2.86% (on 1/10/2014)
Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).
Analysis: As you can see, sentiment indicators are still a bit frothy but technical indicators are leaning bullish. Once again, the Fed will trump the indicators when they meet in two weeks. Until then, stay alert and cautious.
Opinion: The market continues to give mixed signals. Technical indicators, while still pointing up, are less bullish than a few weeks ago. At the risk of sounding like a broken record, this is the time tobe prudent while the market reveals its next move.
Before Friday, emerging markets and bonds were getting whacked (as expected), but the reverse occurred on Friday after the lackluster jobs numbers were released. After all, poor economic news means no tapering, which is good for emerging markets and bonds.
Put January 28th on your calendar as Janet Yellen takes over the Fed. Plan for two weeks of “taper or no taper” guessing games. I don’t ever remember a time when the market was so dependent on the words of the Fed. Is it going to be this way forever? I hope not. One thing for sure: If the Fed makes a mistake in how it handles the unwinding of QE, there will be hell to pay.
Bottom line: Be cautious as the market could go in either direction this week.
* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.