WHAT THE INDICATORS ARE TELLING US
This is what the technical indicators are telling us this week:
One-week trend = Uptrend. The bulls squeaked out another win last week. SPX rose from 4436 to 4468, a 32-point advance. Futures are LOWER on Sunday night as the indexes flirt with all-time highs.
RSI: (S&P 500) @72.36 (WEEKLY) = Extremely Overbought. I have not seen RSI this high since right before the March 2020 Covid crash. Does this mean the market is going to crash again? No one knows. I will have more to say about this below.
MACD (WEEKLY) = Neutral. The weekly MACD is still giving mixed signals. The MACD line is above the zero line, which is bullish. The MACD line is even with its 9-day signal line, a neutral reading. As mentioned in the past, MACD does not work in a low-volatility environment. Until volatility returns, use another indicator.
Daily Intraday Volatility (VIX) = 15.45= The VIX keeps moving lower and lower (as the RSI keeps moving higher and higher). One day volatility will return with a vengeance, but until then, be patient.
Comment: A ridiculously low VIX and an extremely overbought RSI during the traditionally worst two months of the year (for stocks). I am not in the prediction business so I won’t even try, but I can say there are red flags everywhere.
As I wrote above, RSI on the SPX hasn’t been this high since last year, and that ended badly. I have no doubt this market is going to end badly, but I sure wouldn’t make a bet on when. Why? Because the algos are overriding all of the technical and fundamental signals. We are really in uncharted territory, and have been for a long time.
Can the algos keep running the market higher while RSI gets even more overbought? Yes, indeed. Just be aware that something will probably come out of left field one day and catch everyone by surprise. Just be on guard. At RSI 72.36, I am in awe. And yet, overbought markets can get more overbought (especially when your best friend is an algo).
Bottom line: Be defensive and that means not taking big risks in this environment. The market is moving higher on hopes and wishes, and not much else.
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