Bullish or Bearish? Week of December 6, 2021

ALERT: I wrote the following column about Mark D. Cook for MarketWatch that includes the clues to look for before a bear market arrives (and what to do about it): https://on.mktw.net/3xRRHvW


This is what the technical indicators are telling us this week: 

One-week trend = LOWER. The Bad News Bears hit another home run; that’s two weeks in a row. Once again, SPX fell — this time from 4594 to 4538, a 56-point pullback. SPX futures are HIGHER on Sunday night but that could change in the morning. Nasdaq futures are FLAT.  If there is a rally in the morning, I am looking to see how long it lasts and if it carries over into the next day.

SPX 20-day moving average (WEEKLY): NEUTRAL.  SPX is above its 20-day moving average but pointing lower, a mixed signal.

RSI: (S&P 500) @57.47 (WEEKLY) NEUTRAL. RSI fell again last week, working off almost all of the extreme overbought readings of the last two weeks.

MACD (WEEKLY) = NEUTRAL: MACD is still above the zero line (bullish) and is only slightly below its 9-day signal line (neutral). MACD is not giving a strong signal.

Daily Intraday Volatility (VIX) = 30.67 = VIX is elevated once again, meaning that professional option traders gobbled up puts for protection. Finally, a little volatility entered the market to the delight of traders and the annoyance of investors. VIX was in the basement for so many years it’s almost a shock to see it at 30 (and also above its moving averages).

Comment: After a two-week selloff, with fear and some anxiety on the rise, it may be a good time add to long positions. After all, there is a likelihood of a Santa Claus rally. It seems like everyone wants to end the year on a positive note, and they “should” get their wish. I’m sure the Fed will be very accommodative to make sure Wall Street gets a gift and not a lump of coal.

On the other hand, after 13 years of sugarplums and lollypops, it’s always possible that something comes out of nowhere and surprises nearly everyone. These black swan events cannot be predicted but traders must be on guard for the anything because when it comes to the market, anything is possible.

It’s true that very few want to end this year on a negative note, so expect a concerted effort to let investors know they should “stay the course.” There is no need to upset the apple cart and remind investors that risks have increased.

Unfortunately, some of the technical indicators and clues are telling us that problems have creeped into the market. As money manager Lance Roberts correctly concluded in his blog: “While the market is now very oversold, volume remains relatively weak along with money flows. Such suggests there is a risk of more selling pressure following any short-term bounce. So, as is always the case, be sure to manage your risk exposures accordingly.”

On one hand, after a two-week selloff, there is a strong possibility of a rally. On the other hand, the bull market is struggling to move higher. Add in a dose of inflation, the cryptocurrency shellacking, certain stocks getting creamed, and the spreading virus and you have a recipe for risk.

In a bull market, however, all of these problems are ignored as the market powers higher. The question we all want to know is: Is this still a bull market? (Answer: Only time will tell.)

Bottom line: The market could go in either direction this week so be prepared for anything. The odds favor the bulls simply because traders and investors want their money back after a 2-week pullback.


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’ latest newsletter:www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com

I will notify you of my posts via twitter@michaelsincere

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