Here are the most recent market indicators:
S&P 500 is above its 200-day moving average = Bullish
S&P 500 is above its 50-day moving average = Bullish
S&P 500 one-month trend = Uptrend (Bullish)
RSI: (S&P 500) @69.39 = Overbought (Bearish)
MACD: Above zero line but even with its signal line (Neutral)
Daily Intraday Volatility: Low (VIX is in the basement again at 12)
Comment: Last week, the market meandered around for four days until Friday, when it broke out to SPX 2900. Not surprisingly, institutional money managers are downright giddy and investors are bullish again (according to AAII and Investors Intelligence sentiment surveys). Typically, investors get bullish at tops and bearish at bottoms, so it’s best to be cautious at these overbought levels.
It’s emotionally difficult to sit on the sidelines when the market is sitting near all-time highs and other investors are making money. It might be difficult, but taking profits and increasing cash is exactly what prudent investors do. This ride to the top is fun, but one of these days there will an elevator ride to the bottom. Until then, be cautious. No one knows if the indexes will break out to all-time highs or retreat. Suggestions: Prepare for both scenarios by taking money off the table. Then diversify or hedge.
Bottom line: I have no idea what is going to happen this week (it’s also a four-day week). The odds are good that the bull market will continue a bit longer, which is the ideal time to take profits. As short sellers have learned the hard way over the last ten years, just because the market is overbought (it is extremely overbought right now) doesn’t mean it will reverse direction anytime soon. In fact, betting on the reversal has been a lonely and unprofitable exercise, at least for nearly ten years.
However, when the indexes do reverse direction one day in the future, it is going to be an epic plunge, one that could last years. That is why it’s so important to read about bear markets, to read books about and by Jesse Livermore, and to prepare for what will happen sometime in the future. Don’t forget that Livermore went broke at least three times betting against bull markets that were fueled by illegal (legal at the time, however) insider manipulation and buybacks, and questionable option strategies.
Don’t think we could crash again? Read the following thought-provoking piece by Lance Roberts, who points out that stock buybacks fed the latest 10-year bull market, but could also cause its demise. Here is a link to his must-read column: https://bit.ly/2UhXTrq
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:www.wolfstreet.com