This is what the technical indicators are telling us this week:
One-month trend = Bullish. Last week, SPX drifted through the four-day New Year’s holiday on low volume and momentum. The indexes drifted slightly higher during the week. SPX closed at 3756 on Thursday night (higher by 50 points from a week before). On Sunday night, the futures are flat, 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) @ 67.28 (Daily) = Overbought. RSI is getting close to the danger zone, i.e. 70 RSI.
MACD = Neutral. MACD is above its zero line but is even with its 9-day Signal Line.
Daily Intraday Volatility (VIX): 22.75 = VIX is still saying there is no fear.
Comment: The bulls are dreaming of a Santa Claus rally, which includes the first week of January. In addition, the so-called January effect suggests that how the market performs in early January determines the rest of the year. Sometimes the January effect works, sometimes not.
Nevertheless, the market is overbought, the virus is exploding, and the economy is mixed. It’s amazing to many that the stock market has done this well, all things considered.
However, if there is anything I learned about the stock market, it’s that what most people “think” will happen doesn’t usually happen. When it comes to the stock market, forget common sense, as the market follows its own path. That is why I follow the market rather trying to outwit it.
The market is overbought according to most technical indicators, but that won’t prevent it from becoming more overbought,. However, once RSI rises about 70 on SPX, be on guard. Trade or invest with caution if and when RSI rises above 70.
Whether you are trading or investing, be sure you are properly diversified in case the market goes in the “wrong” direction. Always prepare for worst case scenarios and look for opportunities to buy winning stocks at competitive prices. Right now, unfortunately, most of the most popular stocks are at or near all time highs.
Bottom line: Stand by and see which side wins. It could be a tricky road over the next two weeks.
Bitcoin news: If you haven’t looked, bitcoin, which rose to $20,000 a coin a few years ago before plunging to $6,000, has made a remarkable recovery recently. If you haven’t looked recently, it spiked from $20,000 to $33,000 per coin. It either means that bitcoin is ridiculously overbought, or a solid long-term investment. I have no idea which, but similar to Tesla, short sellers got smashed.
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