This is what the technical indicators are telling us this week:
One-month trend = Bullish. Last week, the S&P 500 rallied a bit higher, closing at 3934, higher by 48 points. The S&P 500 futures are higher on Sunday night (but that could change at the open). If the rally continues after the market opens, it could be a bullish day (and week). S&P 4000 is within reach.
Mid-term (50- and 100-day MA) = Bullish. The S&P 500 has continued to rally, leaving the 50-day MA in the dust. The trend is up.
RSI: (S&P 500) @ 67.08 (WEEKLY) = Overbought. RSI has creeped higher, and closer to a more extreme overbought signal. At over 70, it is a warning sign, so be alert this week.
MACD (WEEKLY) = Bullish. MACD is above its zero line and above with its 9-day Signal Line. MACD is still signaling a bullish trend.
Daily Intraday Volatility (VIX): 19.97= VIX has plunged as the rally continues. Risk? What’s that?
Comment: It’s a four day week so anything is possible. The rally slowed down a bit last week, and waiting to find a direction. On Sunday night, futures are higher, and S&P 4000 is likely. Although many will celebrate, wise traders will watch to see how the market reacts at the 4000 level.
I’ll keep this short. The market is overbought, but it should get more overbought. Not only stocks but many financial products are overbought (including bitcoin). Warning: Betting against overbought markets (and stocks) can be risky if you don’t get out in time. Don’t fight a strong uptrend.
If you want to bet against the market, I’d recommend moving to cash, or probing first with small positions. Unless you like to take risks, it’s not the time to bet against a market that never seems to go down. Yes, one day there will be a horrific selloff, but trying to time when that occurs is extremely difficult. Look for clues, which is what we are doing here.
Hint: I am watching the weekly MACD for clues. When that turns down, that may be an early signal of trouble ahead. I am also looking at RSI. If and when the S&P rises above 70, I will be putting on my short-term bear hat.
Bottom line: Many traders smarter than me are warning of a 10 percent pullback, but are being ignored. Timing a pullback is difficult, unless you can identify signs of trouble. For now, however, all systems are go and the market seems poised to hit S&P 4000. Bring out the party hats (but keep your eye on the door!)
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: https://wolfstreet.com