Here are the most recent market indicators:
S&P 500 one-month trend = Major Pivot (Possible Blow-off Top)
S&P 500 has moved above its 200-day moving average, and above its 50-day MA (on Monday): Bullish
RSI: (S&P 500) @54.68+= Near Overbought (likely to become overbought on Monday morning)
Daily Intraday Volatility: High (to Moderate)
Comment: Fortunately, we were prepared for the monster rally last week. Two weeks ago, it was mostly doom and gloom.
It was surprising that Fed Chairman Powell completely changed the wording about interest rates, fueling an even bigger than normal rally. The futures are telling us the extreme rally will continue on Monday (Dow should open over 400 points). This is not the time to get greedy, and in fact, this is the time to reduce losing positions.
In reality, not much has changed. Nevertheless, Wall Street and the government wanted a positive year, and they could get their wish. Unfortunately, eventually there will be a price to pay for financial engineering. It is still going to be quite a feat to keep the indexes elevated until January 1, but it’s very possible. Judging from the past, it would not be surprising if we limp into the end of the year with low to moderate volatility (that’s what Wall Street wants). However, we have a slew of economic data that will be released this week, so any negative surprises could send the market in reverse.
When the selloff returns (don’t forget it’s only been a week since the last one), and it will eventually, investors will wish they had sold some of their stocks.
What if the current rally continues into next year? In that case, you stay cautiously long while preparing for an even bigger correction. Eventually, all of these financial bubbles are going to pop.
One week does not change a dangerous market environment. The FAANG stocks are still in trouble, debt levels are sky high, the credit markets are showing signs of stress, and the snapback rally appears to be a bear market rally rather than a true trend change.
Bottom line: Be careful out there whether you are short or long. If you’re not experienced, trade small. One thing for sure: When the selloff does come, it’s going to be one of the most profitable shorting opportunities in many years. As I’ve said in the past, this is the time to learn how to short, buy put options, or get out of the way.
Reminder: The markets are closed on Wednesday because of the memorial to George HW Bush.
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