This is what the technical indicators are telling us this week:
One-month trend = Temporarily Broken. The indexes drifted lower last week, closing at 3768 on the SPX, (lower by 56 points from a week ago). On Sunday night, the futures are higher, but that could change in the morning.
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) @ 57.06 (Daily) = Neutral. After last week’s pullback, RSI is back in neutral territory. Anyone who ignored the RSI signals last week did so at their own peril. When RSI hits 70 or higher, as it did a week ago, that’s a warning sign.
MACD (Weekly) = Bullish. MACD is above its zero line and above its 9-day Signal Line. When the weekly MACD falls, that will be a sell signal. We’re not there yet. Note: I switched from observing the daily to the weekly MACD.
Daily Intraday Volatility (VIX): 24.34= VIX is still low, and telling us there is little or no fear.
Comment: Last week, RSI warned us that a pullback was likely, and it didn’t disappoint. Although volatility was contained, the market drifted lower last week. It could have been a whole lot worse, but the algos came to the rescue.
As you know, this is a four-day week, so anything is possible. We have a new administration, a virus that’s still out of control but with hope the vaccines will save the day. The nation is on edge but the stock market is oblivious. It has created a very strange financial environment.
Four-day weeks are historically difficult. An increase in volatility is possible, even likely. With the market still at all-time highs and with a battered economy, be prepared for anything. There is reason to be hopeful for the future, but in the short-term, the country is going through hell.
Meanwhile, the stock market is in a world of its own. That is why it’s impossible to predict what direction the market is headed this week. My advice is to wait for clues on Monday morning to see which way the wind is blowing. Then trade accordingly.
Bottom line: It could be a tricky trading environment this week so be careful, and trade small until you can identify the trend (if you are a trend trader).
Lance Roberts wrote a thoughtful piece on how the market is vulnerable because “everyone is in the pool.”: https://bit.ly/3ircD4Z
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