This is what the technical indicators are telling us this week:
One-month trend = Bullish. SPX is well above its 200-day MA and is in an uptrend. Note: SPX is at 3484 on Sunday night, higher from a week ago. The 200-day is at 3083. SPX futures are edging higher.
Mid-term (50 and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA.
RSI: (S&P 500) @ 79.26 (Daily) and 67.59 (Weekly) = Extremely Overbought. SPX and the other indexes are in the danger zone. More on this below.
MACD = Neutral. MACD is above its zero line and is still even with its 9-day Signal Line.
Daily Intraday Volatility (VIX): 22.96 = Danger Zone. VIX is getting crushed by the volatility-killing algos. VIX is below its 200-day moving average, which tells me there is still no fear.
Comments: Last week I remarked that you should wake me up when something happens. Something happened. All the major indexes are extremely overbought and in the danger zone. The RSI of SPX is near 80 on the daily chart. This is equal to the readings in February, right before the March 35% selloff. Lance Roberts referred to it as exhibiting “technical extremes,” and he is correct.
In non-technical terms, I would refer to the market as being in the Twilight Zone.
As every technician knows, indexes and stocks can remain overbought for long time periods, especially individual stocks. I have seen stocks that had an RSI of 90 and above but remained overbought for weeks before coming back to Earth.
This does not mean that the market is going to crash, or that a correction is imminent, but it does say the bulls are playing with fire right now. Any spark could send the market reeling downwards.
Some technicians are predicting a “blow-off top,” and that’s also possible. That means the indexes could have one final push higher, a last hurrah, before the ultimate downfall. Shorting a blow-off top is not recommended, as Tesla shorts learned the hard way.
On the other hand, investors are feeling invincible right now as the bears got mauled. Anyone who knows market history knows the markets are at rarified levels right now. It has moved too high and too fast under less than ideal economic conditions. Something just isn’t right.
This is not going to end well, but no one can say when it will reverse or what the cause will be. Just be on the lookout for clues. This is not the time to take on large positions. This is the time to manage risk.
Bottom line: The market has my attention now. I’m watching RSI closely to see how overbought we get this week. Be prepared for anything, including a major market selloff in the near future.
Below is further market analysis by Lance Roberts via his blog:
Lance Roberts @ realinvestmentadvice.com says you better be ready, as a major market decline is possible: https://bit.ly/3hDvgl3
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:www.wolfstreet.com