This is what the technical indicators are telling us this week:
One-month trend = Bullish. SPX drifted higher during the week. Volume and momentum was on the light side all week. Futures are flat to lower on Sunday night, but once again, wait until the morning for confirmation.
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) @ 67.96 (Daily) = Overbought. As SPX creeps higher, so does RSI. It’s near the 70 RSI overbought level, so be on guard. I would not be surprised to see a severe reversal based on RSI alone, but no one can predict when.
MACD = Bullish. MACD is above its zero line and above its 9-day Signal Line. MACD is signally that the uptrend will continue. Look for any signs of a reversal.
Daily Intraday Volatility (VIX): 20.79 = How low can we go? VIX tells me that bullish investors have little or no fear.
Comment: The overbought market has become more overbought. Throw the fundamentals out the window because no one seems to cares. Just like in 1999, and 2008, all that matters is that the market is going higher.
Wise traders, however, know that extreme overbought markets can reverse on a dime, and at anytime. I can’t predict when that will happen, but I am certain it will happen. There is a point when there just aren’t enough buyers to keep lifting the market higher.
Trying to time a reversal is difficult for most traders. That is why it’s a good idea to trade less often and with smaller positions as the market gets more overbought. If the RSI of SPX rises above 70, that is a flashing warning signal.
Most investors are waiting for a Christmas rally, fueled by the positive vaccine news. And yet, the jobs number was disappointing, and there are other signs of economic problems.
Bottom line: It’s unknown which direction the market will go this week, but the overbought signals should not be ignored. Markets can reverse without warning before investors have a chance to react. Watch the rallies closely for clues of a struggle to move higher.
Here is the latest from Lance Roberts (realinvestmentadvice.com), who notes that investors are ignoring the rising risks: https://bit.ly/3osdAvI
Sven Henrich (Northman Trader) observes how momentum is weakening while the market moves ever higher: https://bit.ly/39K4Vkh