Bullish or Bearish? Week of July 17, 2017

Here are the latest technical and sentiment indicators:  

Technical Indicators (daily chart)

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

MACD (S&P 500; 19,39,9) is above its zero line = Bullish

MACD (S&P 500; 19,39,9) is even with its signal line = Neutral

S&P 500 support @ 2400


Sentiment Indicators (+RSI)

II survey: (July 11): 50.0% Bulls; 18.6% Bears = Bearish

AAII survey: (July 12): 28.2% Bulls; 29.76% Bears = Neutral

VIX: @ 9.51 = Bearish

RSI: (S&P 500) @ 62.46 = Neutral

Comment: Using the Darvas “box theory,” we went from the lower end of the box to the upper end within minutes, another way of saying we went from support to resistance on the S&P 500 in one day. How did this happen? Janet Yellen said in “Fed speak” that she was going to be cautious about raising interest rates. At first, the market sold off, then it rocketed to all-time highs when Janet hinted that low interest rates will continue indefinitely.

The main strategy that has worked for the last eight years is “buy on the dip,” and that continues. It won’t continue indefinitely, but as we enter this week, there is no evidence (yet) this strategy will stop working. This week is important: Most analysts are strongly bullish, but I am waiting to see if the S&P can remain above 2450. Once again, the bulls have Janet in their corner. This week, perhaps reality will appear, but I wouldn’t bet on it. 

Bottom line: Although the market can go much higher from here, which is the expectation from most pros, caution is advised. Take a wait and see attitude before committing heavily to one side or the other. Will the S&P remain above resistance? If so, the bull market continues. If not, a pullback is likely. One certainty: No one can predict which direction the market will go this week, although many have tried.

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