WHAT THE INDICATORS ARE TELLING US
This is what the technical indicators are telling us this week:
One-month trend = The bulls remain in control: SPX rose by a decent 18 points last week, rising from 4229 to 4247. The Bad New Bears have still failed to run with the ball but their luck may finally change in the near future. Futures are flat on Sunday night.
Mid-term (50- and 100-day MA) = Bullish: SPX and the other indexes are well above their 50- and 100-day moving averages. If you look at a chart, it looks like “blue skies,” but thunderstorms can appear out of nowhere, especially during the summer. Don’t be surprised when that happens.
RSI: (S&P 500) @70.40 (WEEKLY) = Overbought. RSI is telling us the market is extremely overbought. In the past, RSI has done an excellent job of warning us of a reversal. Now that RSI is above 70, the odds of a selloff have increased substantially.
MACD (WEEKLY) = Mixed Signals. MACD is above its zero line but equal to its 9-day Signal Line. MACD is still not giving a clear signal at this time.
Daily Intraday Volatility (VIX): 15.65 = After falling to a low of 15.65 last week, VIX is low, but not at extreme levels. Along with RSI, the plunging VIX gave a warning sign last week.
Barchart Stock Evaluator for SPY and QQQ (link below): SPY is a 100 percent buy, while QQQ is a 88 percent buy (according to this indicator).
Comment: What, me worry? One glance at a chart and it’s not surprising why investors are feeling so euphoric. Some ultra-bullish financial commentators have even proclaimed that the market forecast is bullish as far as the eye can see, and all they see is blue skies.
It’s what you can’t see that should worry investors. With RSI at extreme overbought levels, and VIX in the basement, caution is recommended. The rallies have been weak and listless. All clues point to a correction in the coming weeks, or sooner.
Granted, no one can predict what will happen, but if you look at the clues, they are pointing to a market that is slowly running out of gas. It wouldn’t take much to send this market much, much lower. As the market struggles at these elevated levels, it is time to play defense, or at least diversify.
Bottom line: No, it doesn’t mean to run out and sell everything, but it means that the odds of a reversal are likely in the coming weeks. As the pros would say, “The upside is limited.” The Bad News Bears have been losing for so long it will be a shock when they finally hit a couple of home runs. Be ready.
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