Bullish or Bearish? Week of July 26, 2021


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

One-week trend = The bulls came roaring back. The bulls took back control last week (after a short-lived selloff on Monday), and ran with the ball. SPX rose from 4327 to 4411, a spectacular 84-point gain in one week. Futures are LOWER on Sunday night. The all-time SPX high is 4415, which means KAPOW – we are at the top.

RSI: (S&P 500) @70.96 (WEEKLY) = Extremely Overbought. Once again, RSI is in the danger zone (above 70 and above), reaching extreme levels. As a reminder, when RSI reaches these levels, it’s been remarkably accurate at warning of a reversal. Although you shouldn’t use RSI to time the markets, the odds are on the side of the bears this week (according to this indicator).

MACD (WEEKLY) = MACD is as flat as a pancake. Again, MACD is above its zero line and even with its 9-day Signal Line. MACD is not giving a clear signal on the weekly. 

Special note on MACD: Some of you may wonder why MACD has been unable to give a signal for weeks. The reason is that MACD works off of volatility. When there is low volatility, as there is now, MACD will not be as effective. Be patient, because this brilliant indicator will shine in the future when volatility returns.

Daily Intraday Volatility (VIX): 17.20 = Fear has been temporarily ignored. NOTE:  VIX dropped a bit last week but didn’t plunge. That tells me that traders are a bit cautious as the market reaches all-time highs.

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

Comment:  The bears owned the market for a week and a day, and then the bulls took control, but on low volume. That is not a good sign, and points to an algo buy-on-the-dip program. And it worked. The market is at all time highs with not a worry in the world.

Except for RSI, which has put out the red flag (when RSI rises above 70, as it is now, the market is extremely overbought). Since RSI has been so accurate over the last few months, I would not ignore its signal. It doesn’t mean to run out and sell everything, but be aware that the market has a date with its destiny.

Sure, the bulls could run the market even higher this week but it’s playing with fire. Nevertheless, based on the accurate RSI signals from the past, the odds favor a short-term reversal. (And don’t believe the ridiculous reasons from the touts on TV explaining “why” there was a market pullback.)

This spectacular market has run up too fast and too high on nothing but hopes and dreams and low interest rates. It’s dangerous up here in the stratesphere, so caution is advised.

The futures are lower on Sunday night but that could change in the morning. Let’s see if this uptrend has some legs during the week. If you have trading profits, it never hurts to take money off the table, a choice only you can make.

Note: The Fed meets on Tuesday and Wednesday, which is typically a bullish signal (but not always). There are lots of mixed signals so guessing direction is next to impossible this week.


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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