Bullish or Bearish? Week of February 7, 2022

WHAT THE INDICATORS ARE SAYING 

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

One-week trend = HIGHER. It was a more subdued week for the indexes, culminating in a rally for SPX, which rose from 4431 to 4500, a 69-point gain. While the indexes rallied, certain individual stocks (such as Meta and PayPal) got smashed, and for one day last week, the market plunged. (More on this later). Futures are NEUTRAL TO SLIGHTLY LOWER on Sunday night, subject to change in the morning.

SPX 20-day (WEEKLY) = LOWER. SPX is still BELOW its 20-day moving average but ABOVE its 50-day MA. This means SPX is still not completely out of the woods — at least until it rises back above its 20-day, and stays above. At the moment, it’s a red flag but no reason to panic.

RSI: (S&P 500) @49.52 (WEEKLY) NEUTRAL. RSI went from slightly oversold to neutral. You can flip a coin because no one knows which way SPX is going this week based on RSI.

MACD (WEEKLY) = SLIGHTLY BEARISH: The weekly MACD is still above the zero line but is firmly below the 9-day signal line. It’s still a cautionary red flag until it can rise back above the 9-day.

Daily Intraday Volatility (VIX) = 23.22= NEUTRAL: Volatility fell again, with the VIX almost back below 20, which means that all is calm again. The previous panic of two weeks ago has been forgotten, as reflected by the low VIX.

Comment: January was just a bad memory as the indexes made a nice recovery during the last two weeks. VIX fell back to a less volatile level (i.e., 23) and RSI is telling us that the market is neither overbought nor oversold.

Nevertheless, it was an ugly week for certain individual stocks. Meta (i.e., Facebook) got smashed by 26 percent in one day; PayPal and Netflix also got hit badly. Even Amazon got hit by 7 percent in one day before rallying back by 12 percent.

It’s a tale of two tapes: The indexes look rather decent, and in fact, rallied nicely. But if you were unlucky enough to own one of the stocks that plunged, you are feeling pain. In fact, the market appears to be playing a game of “Whac-a-Mole,” when you wake up each day not knowing which stock is going to get “whacked.”

The Fed is in a tough spot, all of their own making. They were late to raise interest rates, which allowed the market to move to extremely overbought levels. It’s possible this is a bubble but we won’t know the truth until later.

Meanwhile, because of inflation, the Fed is forced to raise interest rates, probably by a puny 25 basis points. If they raise rates by much more, it will affect the housing market, particularly mortgage payments, as well as any borrower whose payments are affected by interest rates. That’s a lot of people!

In other words, the Fed is going to raise rates (even if by 25 basis points) at exactly the wrong time! It will be fascinating to watch this delicate dance play out over the next few weeks and months.

Bottom line: After 13 years of a bull market, it’s getting dangerous out there. Last week it was Netflix, Meta, and PayPal. This week there could be new victims. Fortunately, the indexes keep plugging along higher, ignoring the damage done to certain individual stocks. The question we all want to know is: Which stock is going to get whacked next?

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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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