WHAT THE INDICATORS ARE TELLING US
This is what the technical indicators are telling us this week:
One-week trend = Still going higher. The bulls eked out a slight win last week. SPX rose by 17 points, moving from 4352 to 4369. After a very rough start to the week, on Friday the bulls saved the day with a 448 Dow gain (and an SPX gain of 48 points). Once again, RSI warned us of trouble, and it was right. Futures are flat on Sunday night.
RSI: (S&P 500) @71.45 (WEEKLY) = Extremely Overbought. RSI is over 70 and is in the danger zone. Last week RSI was at 70 and SPX fell hard for the first two days of the week. It recovered on Friday but now the weekly RSI is higher than it was a week ago. That’s a warning sign!
MACD (WEEKLY) = Mixed Signals. MACD is above its zero line and even with its 9-day Signal Line. Once again, MACD is not giving a clear signal at this time.
Daily Intraday Volatility (VIX): 16.18 = Little or No Fear. VIX is once again telling us the only fear is the fear of missing out. Few traders are buying put protection since few believe the market will reverse. (That’s another danger sign.)
Barchart Stock Evaluator for SPY and QQQ (link below): What else is new? SPY are both 100 percent strong buys (according to this indicator).
Comment: The indexes including SPX fell hard last week, confirming the warning from RSI. And then, like a miracle, the indexes rallied strongly back to even on Friday. RSI is now saying the market is more overbought and extended than a week ago. Be alert to a potential reversal (but don’t use RSI to time the market).
I have no idea why SPX and the other indexes rallied on Friday to another new high, but I’m guessing it was a strong algo buy program. The bulls are in control again.
There are other warning signs. Anyone who has been at the grocery store or at a restaurant know that prices are surging. It’s not just food prices, either. Put another way, inflation is rising, although the Fed says it’s “temporary.” So we have near-zero interest rates, rising inflation, an extremely overbought market, and millions of investors who believe the market only goes in one direction. It doesn’t take a genius to know this is not going to end well.
No, we are not going to crash tomorrow, but the clues and indicators are telling us the market is on borrowed time. Traders and investors should manage risk, and that means to trade less, diversify, and to avoid plunging with large sums of money.
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:www.realinvestmentadvice.com
For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com