Bullish or Bearish? Week of July 19, 2021


This is what the technical indicators are telling us this week: 

One-week trend = The uptrend stalled. The bears took back control last week, at least temporarily, and SPX dropped by 25 points, falling from 4352 to 4327. As usual, RSI warned us last week that the market was due for a pullback (although a small one). Futures are LOWER on Sunday night. 

RSI: (S&P 500) @67,54 (WEEKLY) = Overbought. RSI was right again. After surpassing 70 last week (red flag), RSI fell back to normal overbought levels. When RSI on the SPX rises above 70, it is a warning sign, and it’s been remarkably accurate. Nevertheless, don’t use RSI for timing because overbought markets can get more overbought.

MACD (WEEKLY) = Same ole, Same ole. MACD is above its zero line and even with its 9-day Signal Line. Once again, MACD is not giving a clear signal on the weekly.

Daily Intraday Volatility (VIX): 18.45 = A smidgen of fear. NOTE: VIX climbed out of the basement last week and volatility increased. Fear is still in short supply, but at least some bulls were forced to face reality.

Research Note: A reader from Portugal — Gonçalo — correctly pointed out that in 2019, VIX was at 11, and in autumn of 2017, VIX went as low as 9! (We believe this was the “all-time” low.) Thanks to Gonçalo for correctly identifying how low VIX can go.

Barchart Stock Evaluator for SPY and QQQ (link below): SPY are both 100 percent strong buys (according to this indicator). 

Comment:  While everyone was betting on the market to go to the moon, RSI told us that things were getting a bit frothy. That was confirmed by the low VIX. And although the market didn’t crash or even fall by that much, it did fall. The next time RSI rises above 70, it’s an orange alert.

As I’ve written before, no one can tell you when the longest-bull-market-in-history will end, only that it will end one day. It could end in a whimper or a crash, but it is going to end. And each day that goes by, the clock is ticking.

Another worrisome clue is inflation, which appears to be rising. Just look at the price of almost everything important, like food and gas. In case you don’t know, the market typically doesn’t like inflation. Meanwhile, the Fed dismisses inflation concerns as being transitory. Hmmm, I wonder how long they can say that!

This week is unpredictable. The bears are trying to keep control, but judging by history, the bulls will not give up the ball without a vicious fight.

Bottom line: No one knows who will win the week, so placing a bet on one side or the other is a gamble. Until there is evidence of a reversal, the odds are still with the bulls although it’s a lot more dangerous now.


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

I will notify you of my posts via twitter@michaelsincere

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