WHAT THE INDICATORS ARE TELLING US
As you know, one of my favorite indicators is the weekly RSI. I wrote a timely column on RSI for MarketWatch that is out today, and here is the link: https://on.mktw.net/3lLcj4Y .
This is what the technical indicators are telling us this week:
One-week trend = The bulls squeaked out a win last week. SPX rose from 4395 to 4436, a 41 point advance. Futures are LOWER on Sunday night as the indexes flirt with all-time highs.
RSI: (S&P 500) @71.10 (WEEKLY) = Extremely Overbought. Read my column on RSI (link above). RSI is in the danger zone so it’s not surprising that the futures are lower on Sunday night. If RSI is correct, the market is in imminent danger of reversing. However, the algos will fight furiously to defend against any downturn.
MACD (WEEKLY) = The weekly MACD is as flat as a pancake. It is above its zero line and even with its 9-day Signal Line. Sadly, MACD does not work in a low-volatility environment, so until volatility returns, use another indicator.
Daily Intraday Volatility (VIX): 16.16= Fear remains in the Twilight Zone. With a high RSI and a low VIX, trouble is coming. Prepare for a rocky road market environment in the near future.
Comment: The star of the show is RSI, which is giving an extreme overbought signal. Combined with a low VIX and all-time highs on SPX, prepare for some fireworks in the near future, perhaps even this week. On the plus side, the jobs number was excellent last week, which helped to propel the markets higher.
On one hand, the algos will work furiously to negate any sell signals, so expect a battle. On the other hand, since RSI has been so accurate, I am putting my money on the indicators: It is telling us the market is ripe for a pullback. (No one knows how far it will go.)
This will be an interesting week. I want to see how much power the algos will use to pump the market higher, and whether they succeed to override the technical signals. I would personally be surprised if we rally this week, but anything is possible.
Bottom line: If you trust the indicators and oscillators, play defense this week. That means trading small and smart. Be prepared for any scenario, even if it is not what you expect.
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