Bullish or Bearish? Week of Dec. 23, 2019

S&P 500 is above its 200-day moving average = Bullish  

S&P 500 is above its 50-day MA = Bullish

S&P 500 one-month trend: SPX is in a strong uptrend that appears unstoppable, but also unsustainable for the long term.

RSI: (S&P 500) @ 75.73 = SPX is extremely overbought. Caution is advised.

MACD: Above Zero Line and above Signal Line = Bullish

Daily Intraday Volatility: 12.51 = Low (Bearish)

Comment: It’s a shortened holiday week as the stock market closes early on Christmas Eve (1:00 p.m. ET), and all day on Christmas. Volume should be light unless there is unexpected breaking news.

This is the first time I’ve seen RSI this high (75.73) on the S&P 500, which signifies an extremely overbought market. Yes, SPX can remain overbought for a while longer, but the clock is ticking.

The Fed appears to be the main reason for the market’s mind altering rise. With low interest rates and QE4 (the Fed continues to pump liquidity into the market), the market has risen to levels that have many market veterans shaking their heads in disbelief. When this bubble unwinds eventually, it’s unlikely we’ll see numbers like this for many years.

Obviously, there is always the chance I’m wrong (along with others who are warning to be careful). Perhaps the bull market has much more room to run, as almost everyone in the financial media is predicting. It’s possible, which is why you don’t run out and sell everything. It’s also possible we have a blow-off top, which would be a signal to reduce positions dramatically before the market plunges.

In my opinion, the smartest choice is to stay diversified while reducing positions with large gains, and also selling losing positions. Obviously, that’s a choice only you can make.

Money manager Lance Roberts (realinvestmentadvice.com) wrote an excellent piece about the current market meltup and some of the steps you can take to reduce risk in an extremely overbought market: https://bit.ly/2ZcubbB

Meanwhile, have a great holiday and stay safe!

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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


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