MY TWO NEWEST BOOKS WERE JUST RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Market: https://amzn.to/35lnjQy The best deal is a two-book gift set (while it lasts): Amazon: https://amzn.to/39gSdeV
Did you get a chance to read my must-read column in MarketWatch last week? Here is the link: https://on.mktw.net/3N8tbMP
WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK
Short-term trend (DAILY CHART) – PLUNGING. SPX fell from 3900 to 3674, another gut-wrenching 226-point drop. I don’t have to tell you how bad it is out there, but there is also good news. We are so oversold that a mind-blowing rally is extremely likely, perhaps even during this week (more on this in the comment section below). SPX futures are higher by 1 percent on Monday night.
Long-term trend (WEEKLY CHART) – LOWER. SPX fell below its moving average on the weekly chart, an awful omen for the long term. SPX is still above its 200-week, but it’s aiming lower. There is huge support at the 200-week and is unlikely to break below it. However, if it does break through, then this will be a vicious bear market. My money is on it “not” breaking through (yet).
MACD (WEEKLY) = LOWER . The WEEKLY MACD is a lagging indicator, so it is reflecting the extremely negative market environment. MACD is below the zero line and below the 9-day signal line.
RSI: (S&P 500) @31.77 (DAILY) EXTREMELY OVERSOLD. SPX surprised many by falling so hard last week but now it’s extremely oversold. Based on RSI, expect a massive rally. Yes, RSI could drop below 30 on the daily chart, but that would make a snapback rally even more likely.
Daily Intraday Volatility (VIX) = 31.13= ELEVATED: The VIX is telling us there is mild concern but we are nowhere near the panic levels of 40 and above on the VIX. There is no doubt that many investors, even many money managers, panicked last week. But option pros have not (as reflected by the elevated but not extreme VIX). This is simply more evidence of a potential rally in the near term.
Comment: It was a brutal week for investors, many professional money managers, index holders, and anyone holding crypto currencies. Those unfamiliar with the market might be ready to throw in the towel about now. Many are going to sell into the Monday rally. Some TV commentators are even recommending that investors do that.
Although I cannot predict the market’s future, I read the indicators, and based on RSI in particular, we are due for a massive rally. The market is a funny beast: Just when everyone thinks there is little hope, and wants to throw in the towel, the market shocks everyone and rallies.
I can’t say for sure there will be a huge snapback rally in the next week or so, but the odds have increased. Obviously, geopolitical news or other problems could appear, but if nothing out of the ordinary occurs, expect a strong, sustained rally. Very few are expecting that!
On the other hand, if the expected rally fails by the end of the day or the next, then things are way worse than many of us think.
Bottom line: This was one of the worst weeks ever on Wall Street going back decades. For many, it felt like a slow crash, and it was, which is the worst kind of bear market. Speaking of bear markets, we are officially in one. Let’s see how long it lasts!