Bullish or Bearish? Week of July 15, 2019

S&P 500 is above its 200-day moving average = Bullish  

S&P 500 is above its 50-day moving average = Bullish

S&P 500 one-month trend: “V” Shaped Rally and Triple Top (one year) at Resistance. It could go in either direction but is hitting major resistance at all-time highs.

RSI: (S&P 500) @70.86 = Overbought

MACD: Above Zero Line and above Signal Line (Bullish)

Daily Intraday Volatility: 12.28 (Subdued). Volatility is still in the basement, which cannot last forever.

Comment: It’s been a while since I’ve seen such an overbought market (over 70 RSI is overbought and it could still go higher), and the VIX so low (at 12.28, volatility is crushed).

Last week, the market was headed lower early in the week, that is, until Fed Chair Jerome Powell gave the market hints that a rate cut is coming (he didn’t actually say that, but the market believes he will cut rates).

Something doesn’t make sense: On one hand, the indexes have just reached all-time highs (SPX 3000), and yet, the Fed wants to cut rates due to the trade wars and other disturbing data (my opinion: such as the hints a recession is looming, and less than spectacular earnings). Nevertheless, something has to give, and if not, this market bubble is going to expand even more. If Powell cuts rates, and the market zooms even higher, be prepared for the short of the year (if not the decade in the intermediate) before the end of the year.

As I said last week, do not short while the market screams higher (as no one knows how high a bubble can expand), but if I’m right, there should be fantastic shorting opportunities in the near future.

In two weeks, the Fed has their formal meeting, and they better not disappoint, or look out below. Although all of the indicators are bullish (with RSI the only exception), it wouldn’t take much for the market to plunge. And yet, although the Fed is playing with fire, it’s very possible they can keep the bull party going a bit longer.

With the VIX so low, it’s difficult for most traders to make money. On the other hand, buy-and-hold investors in indexes are pleased with their profits, and believe the Fed will save them if there is a sudden reversal. Although volatility has been suppressed over the last four months (thanks to the algos), it can’t last forever.

Bottom line: It’s a confused and dangerous market that looks pretty on the outside and weak on the inside. With the RSI so high, a dislocation would not be surprising, but the Fed will do whatever it can to support the indexes. Be alert to any possibility this week and beyond.


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:www.wolfstreet.com

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