Here is a link to my most recent book, Make Money Trading Options, which introduces a new trading strategy for beginners: Amazon: https://amzn.to/3kqw5zQ. Barnes 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
WHAT THE INDICATORS ARE TELLING US
This is what the technical indicators are telling us this week:
One-month trend = Bullish. The bulls took control and we’re off to the races, for now. SPX rose by 45 points last week, from 3974 to 4019. Yes, we’re over 4000 SPX points. SPX Futures are strongly higher on Sunday night, and if that holds, the rally continues. Nasdaq is higher Sunday night but not by as much.
Mid-term (50- and 100-day MA) = Bullish: The rally is intact as the indexes move away from its moving averages.
RSI: (S&P 500) @ 66.47 (WEEKLY) = Overbought. RSI rose a few more points with the market. If we get into the danger zone (over 70) this week, I will be paying close attention to signs of a reversal.
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): 17.33= The VIX plunged, once again reflecting the mindless lack of fear.
Barchart Stock Evaluator for SPY (link below): According to this proprietory program, SPY is a 100 percent buy.
Comment: Like most traders, I will take advantage of the short-term rallies using day trading or even weekly strategies (i.e. swing trading). But I know from experience that the higher we go, the more dangerous it becomes. No one is expecting a 10 percent correction, and they cannot be predicted.
What do you do if you know a 10 percent plunge is coming? If you are a long-term investor, read the article I wrote for MarketWatch (link above).
It discusses the long-term strategies of master investor Peter Lynch. His advice: Stay the course. Although he didn’t like corrections, he knew they were inevitable and just held onto to what he owned.
On the other hand, if you are trading, then you take advantage of short-term trends or reactions. Traders will likely ride the bullish wave tomorrow and perhaps for a few days longer while preparing to sell at the first sign of problems. It’s not easy being a trader!
In the short-term, the market is signaling “full speed ahead.” In the mid-term, this overbought market should cause some concern. I’m watching RSI closely to see if it surpasses 70. Although the market or stock can remain overbought for long time periods, an overbought market is susceptible to unexpected bad news.
Bottom line: Although the market sky looks blue, danger could be lurking. It doesn’t mean you have to react, or try to predict what will happen. It does mean knowing what you own and having a plan.
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