Here are the most recent market indicators:
S&P 500 one-month trend = Downtrend (major Pivot Point)
S&P 500 is below its 200-day moving averages = Bearish
RSI: (S&P 500) @36.43 = Oversold = Bullish
Daily Intraday Volatility: Moderate to High
Comment: Now you know what a bear market feels like! Judging by the chart and the action from last week, the market is in a downtrend. Sentiment is awful: Investors Intelligence has the most bearish readings in five years. Mutual fund outflows were the highest in years. Everywhere you turn, there is negativity. In addition, this is the worst December for the S&P since 1980. The investor chatrooms are overwhelmingly negative. Adding to the doom and gloom, the Fed seems to be indecisive and nervous.
Believe it or not, because sentiment is so negative, it would not surprise me to see a huge rally this week, so be prepared. RSI is also telling us the market is oversold (another reason a rally is likely).
The Fed has a difficult balancing act at their meeting (Dec. 18 and 19th) this week. If they raise rates too high, the market will protest (as it is doing now). If they stop raising rates, people will wonder if the economy is worse than they are admitting. More than likely, the Fed will raise rates by a quarter point this week but signal they will ease next year. If all goes according to plan, the market will rally strongly on their comments. (If the market doesn’t rally on the Fed’s comments, then the problems are more serious than anyone realizes, or the Fed has lost credibility. Either scenario is not good).
No matter what happens this week, you have to change with the market. It is not easy to trade a treacherous bear market. Unfortunately, we could be in the 2nd inning of a 9-inning game. That means we have a long way to fall, but it probably won’t happen in a few days or weeks (i.e. crash). The most difficult market environment is a long and slow downward trend with occasional rallies. It is not easy to trade, or invest. On the way down, investors remind themselves to hold even though the pain from losses become excruciating (believe me, I’ve been there). They correctly remind themselves that Warren Buffett holds in bull and bear markets. For traders, the increased volatility is a double-edged sword. On one hand, profits can be made on the way down but it’s extremely difficult. Millions of nervous investors threw in the towel and moved to cash last week to ride out the storm from the sidelines.
Bottom line: The easy days of a bull market uptrend are over, so be ready. You will have to decide if you are a long term investor, trader, or in cash. (Some will manage all three simultaneously.)
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