Bullish or Bearish? Week of February 21, 2022


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

One-week trend = LOWER. Once again, SPX retreated, falling from 4418 to 4348, a 70-point pullback. The bears have been dominating the bulls since January. The uncertainty about Russia and Ukraine hasn’t helped. The futures are LOWER on Monday night (but that could change in the morning).

SPX 20-day (WEEKLY) = LOWER. SPX is still BELOW its 20-day moving average and now below its 50-day MA. And yet, when this happened in the past, a rally was not far behind. Although it looks bleak, an unexpected rally is always possible.

RSI: (S&P 500) @42.63 (WEEKLY) OVERSOLD. RSI is on the oversold side but not at extreme levels yet.

MACD (WEEKLY) = BEARISH: The weekly MACD is below the 9-day signal line and headed directly for the zero line. It’s leaning bearish but it’s not there yet. Wait and see.

Daily Intraday Volatility (VIX) = 27.75 = ELEVATED: There is an elevated level of fear, which means option traders are gobbling up puts for protection. That also means the cost of put and call options are rising. Fear is creeping back into the hearts and minds of option traders.

Comment: The market started the year weak and it’s gotten even weaker. Add in the Russia-Ukraine mess and you have a recipe for trouble. This is not the time to panic, but to plan. Review what you own, make sure you are properly diversified, and decide if you are a short-term trader or long-term investor.

Investors with a long-term view who are comfortable with their holdings will likely stay the course. This is the advice given by market gurus such as Peter Lynch and the late John Bogle. Know what you own.

On the other hand, if you are a short-term trader, this will be a challenging environment. Volatile markets are not easy to manage but those who have learned how can profit from corrections and short-term pullbacks.

As I wrote earlier, although things look bleak right now, a mind-blowing rally is always possible. Therefore, don’t get too comfortable with the bear side as the market has been known to fool most of the people most of the time. Just when short-sellers believe they are in the Winner’s Circle, something often comes out of left field to wreck their hopes and dreams. Be on your toes no matter which side you are on.

It’s too early to declare a correction (let alone a bear market). SPX has fallen below its 50-day moving average, and that is a red flag. We have to see whether it can rise back above it during the week.

Obviously,, with the uncertain geopolitical situation and rising interest rates, it’s probably going to be an unpleasant week, at least at first. However, the market is always full of surprises, so be prepared for anything.

As I wrote in an earlier blog, the worst scenario for the stock market, one that I hope does not happen, is that we get a long, drawn-out, drip, drip, drip market that moves lower for months. No one is expecting that but it would be the most damaging. If that awful scenario comes true, we could see, for example, three days down, then one day up. It would not be fun (or profitable) for most people.

Bottom line: The odds are good we are entering a very unpleasant market environment. Have a plan, evaluate what you own, and raise cash if needed. Good luck out there, we are all going to need it.


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

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