Bullish or Bearish? Week of August 15, 2022

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Short-term trend (DAILY CHART) – HIGHER. There was another spectacular rally last week (four weeks in a row), from SPX 4145 all the way to 4280, a 135-point rise. It surprised a lot of traders, including many professionals. As a result, the short-term trend has shifted to strongly bullish. Sunday night futures are flat to slightly lower, but that could change in the morning.

Long-term trend (WEEKLY CHART) – HIGHER. On the weekly, SPX is making a play for its 50-week moving average, and if successful, we will have to re-evaluate whether this is still a bear market.

MACD (WEEKLY) = MIXED . The WEEKLY MACD is well above the 9-day signal line but is still below the zero line. Mixed Signals. 

RSI: (S&P 500) @71.67 (DAILY) EXTREMELY OVERBOUGHT.  There is a price to be paid for a months-long spectacular rally, and that is RSI. It is telling us that SPX is extremely overbought in the short term (RSI above 70). RSI has been remarkably accurate in the past for identifying overbought conditions and future selloffs. This is a warning sign.

Daily Intraday Volatility (VIX) = 19.53= COMPLACENT: The VIX is telling us that option buyers are not worried about a selloff, which is when you should be worried!

Comment: The last month has been amazingly bullish for the market, and especially for SPX. I wish I could say that all is well on Wall Street but I have learned the hard way to read the clues, and RSI is giving us a strong one. RSI is saying the market is extremely overbought and a reversal is likely, although no one can say when.

Bearish analysts are saying this rally is a “dead cat bounce,” i.e., a bear market bounce. On the other hand, bullish analysts are saying this is a “new bull market.” It’s too early to say who is right, so step right up and place your bets. It could go either way this week.

Some large retailers such as Target, WalMart, and Home Deport are reporting earnings this week. Their results should influence the market, at least for that day.

Bottom line: It’s too early to say whether we are still in a bear market or if a new bull market has evolved. As mentioned earlier, RSI is flashing a warning sign.

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