WHAT THE INDICATORS ARE TELLING US
This is what the technical indicators are telling us this week:
One-week trend = The bulls and bears fought it out last week. The bears won the week by a small margin, even while the Fed had their monthly meeting. SPX fell from 4411 to 4395, a puny 16 point drop. Futures are HIGHER on Sunday night. After hitting an all-time high a couple of weeks ago, the bulls may try to break more records.
RSI: (S&P 500) @69.42 (WEEKLY) = Overbought. Once again, RSI warned us the market was overbought and in the danger zone (70 and above). It could have been a disaster last week but the algos did their best to negate the technical signals. If SPX rallies strongly this week, be on the lookout for a strong reversal (especially if RSI blows past 70).
MACD (WEEKLY) = MACD is as flat as a pancake. It is above its zero line and even with its 9-day Signal Line. As you may remember, MACD is not very effective in a low-volatility environment. Be patient, as this brilliant indicator will shine in the future when volatility returns.
Daily Intraday Volatility (VIX): 18.24 = Fear is still on holiday. NOTE: VIX rose a point during the week but remains moderately low. That tells me that traders are a bit cautious as the market reaches all-time highs.
Barchart Stock Evaluator for SPY and QQQ (link below): SPY are both 100 percent strong buys (according to this indicator).
Comment: The market (SPX) remains overbought and in the danger zone. RSI has given us excellent signals over the last few months. This week, it’s possible RSI will rise above 70 (on SPX). If that happens, be on guard for a reversal. But don’t take heavy short positions as the algos will be ready to pounce on any pullback.
Additional analysis from Lance Roberts: “With that said, we are entering into the two weakest trading months of the year. Stocktrader’s Almanac had a good note on why the rally could experience a “pause” over the next two months.
“For the past 33 years from 1988-2020 August and September are the worst two months of the year for DJIA, S&P 500, and NASDAQ. August is the worst for DJIA and S&P 500 and September is worst for NASDAQ.
Despite the persistence and resilience of this bull rally market internals and technicals are showing some signs of fatigue.“ END
And there you have it: The indexes are overbought and we are entering the most difficult two to three month trading period. Volume is low but the algos don’t care. They pounce on any pullback.
Bottom line: We are getting many mixed signals so predicting what will happen this week is near impossible. There are so many cross currents from so many sources it’s hard to know which “side” will win. Be patient but also be flexible. Be on the lookout for a major trend change one of these days.
Good luck out there and stay safe.
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