This is what the technical indicators are telling us this week:
One-month trend = Bullish. The indexes continued to rise last week, closing at 3824 on the SPX, (higher by 68 points from a week ago). On Sunday night, the futures are drifting lower and lower, but that could reverse in the morning, or get much worse.
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) @ 67.28 (Daily) = Overbought. RSI is in the danger zone at 70.27. This is a warning sign.
MACD (Weekly) = Bullish. MACD is above its zero line and above its 9-day Signal Line. Note: I switched from studying the daily to the weekly MACD.
Daily Intraday Volatility (VIX): 21.56 = VIX is still in the basement, and telling us there is no fear.
Comment: SPX is on a roll, and rose another 68 SPX points against all odds. In fact, the indexes moved up so high and fast that even some bullish professionals are warning of a severe pullback. They are probably looking at indicators that are signally an extremely overbought market.
RSI, my personal favorite, hit 70 on Friday. The indexes have pulled back on Sunday night (in the futures market), which is not surprising considering all of the bad news swirling around.
Speaking of overbought, Bitcoin rose to $40,000 per coin, which attracted the attention of thousands of investors who are suddenly interested in bitcoin (again). It’s interesting that investors ignore stocks and other products such as bitcoin when it’s at low prices. But when it spikes higher, suddenly everyone is interested. A lesson I learned a long time ago: If a stock or other product such as bitcoin moves up too high and too fast, the risk of a reversal is extremely high.
With all of the negative political, economic, and virus news swirling around, it’s astounding the stock market is at these extreme levels. Do not be shocked if there is a sudden and violent plunge in the near future, maybe even this week or next. We haven’t had any pullbacks since last March, so we’re definitely due for a nasty surprise.
Bottom line: The market is overbought and dangerous according to the indicators. Be careful out there.
The following is an excellent piece by Lance Roberts, on how the market is overbought and over-extended: https://bit.ly/2Li9Q1O
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