Bullish or Bearish? Week of April 12, 2021

Here is a link to my most recent book, Make Money Trading Options, which introduces a new trading strategy for beginners: Amazonhttps://amzn.to/3kqw5zQBarnes and Noble link: https://bit.ly/3rbr28Q

My latest MarketWatch column on what I learned from legendary investor Peter Lynch can be found here: https://on.mktw.net/39VvB0E


This is what the technical indicators are telling us this week: 

One-month trend¬†= Bullish. The bulls remain in control and the trend is up, up, and away.¬†SPX rose by 109 points last week, from 4019 to 4128. The Dow futures “were” strongly higher on Sunday night, but reversed direction at 9:00 p.m. ET., and are slightly lower. I have no idea what will happen in the morning.

Mid-term (50- and 100-day MA) = Bullish: The rally is intact. The indexes keep moving farther away from its moving averages. 

RSI: (S&P 500) @ 70.11 (WEEKLY) = Extremely overbought. RSI is in the danger zone (above 70) and if the overnight futures hold, SPX and the other indexes will get more overbought. This is a warning signal. However, indexes and stocks can get more overbought before reversing.

MACD (WEEKLY) = Neutral. MACD is above its zero line and even with its 9-day Signal Line. MACD is not giving a clear signal. 

Daily Intraday Volatility (VIX): 16.69 = The VIX continues to plunge, once again reflecting the mindless lack of fear in the marketplace.

Barchart Stock Evaluator for SPY (link below): According to this proprietory program, SPY is a 100 percent buy. 

Comment: This is one for the history books. While the three major indexes appear bullish with no end in sight, RSI is a definite red flag. Based on my past readings, when RSI gets this high on SPX, a reversal is looming. Everyone wants to know when it will reverse! No one can say when, but right now, the bulls are playing with fire.

If you are a trader, I wouldn’t be holding for very long, and as for me, I’m not holding over the weekend. If you’re a long-term investor, as long as you know what you own, and are diversified, a short-term plunge shouldn’t shake you up. Nevertheless, caution is advised.

I’ve talked to trading veterans and they can’t believe what they’re seeing. Timing reversals are near impossible. There are also clues this is a bubble, and if true, then no one knows the real value of anything. Scary thoughts, but meanwhile, enjoy the ride while it lasts.

Bottom line: An extremely overbought market that could get more overbought until reality comes out of the blue and smacks the uninformed in the face with a 2×4. This should be an interesting week.


Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts:www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com

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