MY TWO NEWEST BOOKS WERE RECENTLY RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Market: https://amzn.to/35lnjQy
WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK
Short-term trend (DAILY CHART) – RALLY. SPX exploded higher, from 3961 to a mind-blowing 4131, a spectacular 170-point rally. This was the second huge rally in a row, but don’t get fooled: We are still in a bear market. SPX is above its 50-day MA, and even with the 100-day, but below its 200-day MA. It must rise above its 200-day before the coast is clear. Note: Futures are lower on Sunday night (but that could change in the morning).
Long-term trend (WEEKLY CHART) – STRUGGLING. On the weekly, SPX is above its 200-week but still below its 50-week but even with its 100-week. Opinion: We had an amazing two weeks but we are not out of the woods yet.
MACD (WEEKLY) = MIXED . The WEEKLY MACD is struggling to rise above the 9-day signal line and it’s still below the zero line. Mixed Signals.
RSI: (S&P 500) @65.90 (DAILY) SLIGHTLY OVERBOUGHT. RSI is overbought but not at extreme levels.
Daily Intraday Volatility (VIX) = 21.33= COMPLACENT: The VIX keeps falling, which reflects the no-fear, What, Me Worry? market environment.
Comment: It was a spectacular two weeks, the best July since 2020. Considering that the Fed signaled that interest rates rising by another 75 basis points made the rally even more amazing. But now we are back to reality.
Many experts are predicting the two-week rally will have legs and last the rest of the summer. Be suspicious of predictions like this because no one knows what the market is going to do this week, let alone this month.
It’s true the rally caught a lot of people off guard as pessimism reached extreme levels. People are still worried about inflation, recession, and a falling stock market, as well as the crypto plunge. As often happens, the market does the opposite of what “everyone” thinks. In a bear market, it can get even more confusing.
If you believe the technical definition of a bear market (i.e., 20 percent below its recent high), then you may believe that the bear market is “over” (as some are proclaiming). Don’t believe them.
Until SPX and the other indexes rise above its 200-day MA, the bear market continues. Bear market are tricky animals so it’s easy to get fooled. This is not the time to plunge into the market but instead, use strategies such as dollar cost averaging or increase cash.
By the way, a few weeks ago, if you had read my interview and followed the advice from trader Howard Kornstein, you’d be looking at huge profits. All of the stocks he recommended made substantial gains over the last two weeks. Now, however, it’s a different ball game.
For example, RSI is saying the market is overbought after a spectacular two-week run. Is this the time to join the buying frenzy and buy after this rally? In my opinion, that would be a risky move. Sometimes you have to be contrarian to survive.