This is what the technical indicators are telling us this week:
One-month trend = Flat to Bullish. SPX drifted through the week, ending almost where it started. Neither the bulls or bears won decisively last week. SPX closed at 3709 on Friday night. On Sunday, the futures are relatively flat.
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) @ 63.53 (Daily) = Neutral to slightly overbought. RSI is in the neutral zone as we start the shortened week.
MACD = Neutral. MACD is above its zero line but is slightly below its 9-day Signal Line.
Daily Intraday Volatility (VIX): 21.57 = VIX is saying there is no fear.
Comment: It’s a four-day week because of the Christmas holiday. Often, there is a “Santa Claus rally” before the holidays, and with the stimulus, along with the vaccine, there is reason to be optimistic. In fact, a lot of investors are extremely optimistic.
I don’t want to sound like a party pooper but as I said last week, when nearly “everyone” is bullish, I get cautious. And judging by my analysis of both professionals and retail investors, it appears as if the majority are extremely bullish. The low VIX confirms the lack of fear.
No one can predict with certainty what is going to happen this week or next, but we can read the clues. After studying the indicators, however, neither side is dominant yet. We could go in either direction.
The market is only sightly overbought but the VIX is on the low side. Although there is reason to be bullish, there is still a lot of financial uncertainty and pain, along with the deadly virus that seems to get worse each week.
These two competing forces have given us the market you see before you: A battle between the bulls and bears. So far, the bulls have a slight edge as every selloff is met with buying. 4000 on the S&P 500 is the goal of the bulls by the end of the year.
Bottom line: More time is needed before making a huge commitment to either side. Keep in mind that the majority of traders and investors are bullish. They could be right, but I’d still be on guard.
The following is an excellent piece by Lance Roberts (realinvestmentadvice.com) on the overly bullish environment, which confirms what I am also seeing: https://bit.ly/3peRKwf