WHAT THE INDICATORS ARE TELLING US
This is what the technical indicators are telling us this week:
One-week trend = The bears finally took control: SPX plunged by 81 points last week, falling from 4247 to 4166. The Bad News Bears finally found their footing, and during a week of a Fed meeting. Surprise, surprise: The stock market can go down, as many investors learned last week. Futures are lower on Sunday night.
Mid-term (50- and 100-day MA) = Neutral: While the daily chart of the SPX is dreadful, with SPX below its 50-day moving average, the weekly chart is less volatile. As I said last week, thunderstorms can appear out of nowhere, and one did. Nevertheless, until the weekly chart changes, there is no reason to take drastic action. But it would not hurt to take measured defensive actions, including hedging and diversifying.
RSI: (S&P 500) @62.85 (WEEKLY) = Neutral. RSI worked brilliantly last week, warning us that the market had become extremely overbought. When RSI rose above 70, it was a huge red flag. The weekly RSI is still overbought, but has pulled back from extreme levels. Caution is still suggested.
MACD (WEEKLY) = Mixed Signals. MACD is above its zero line but slightly below its 9-day Signal Line. MACD is still not giving a clear signal at this time.
Daily Intraday Volatility (VIX): 20.70 = VIX is still low but it is no longer in the basement. A little fear entered the market last week, as reflected in the VIX, which rose from 15.65 to 20.70.
Barchart Stock Evaluator for SPY and QQQ (link below): SPY is a 64 percent buy, while QQQ is a 100 percent strong buy (according to this indicator).
Comment: The indicators, especially RSI and VIX, did an excellent job of warning us the market was in the danger zone. While most investors were all in last week, and many commentators on TV had forecast a strong uptrend, RSI and VIX said, “Buyer beware.” And they were right.
RSI is still saying the market is overbought and VIX is no longer in the basement, but storm clouds are still threatening to ruin the bull party. As always, no one can say when. It will be interesting if the bulls come roaring back this week. Often, after a rough week, bullish algos and retail investors buy on the dip. No one can predict if they will be successful.
The news item that made investors nervous last week was inflation, something that must be watched. We all see that prices are rising, and there is inflation, but is it temporary (as the Fed claims), or here to stay? If the Fed is right, then the market should continue on its merry way. If inflation rears its head, and the Fed is forced to raise interest rates, the party will end quickly.
Bottom line: It is unknown whether this is a good time to buy on the dip, although many will try. The market is still overbought but not as much as last week. The bulls will try to take control this week, and it’s possible they will succeed. After all, they have for the last 13 years!
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