MY TWO NEWEST BOOKS WERE JUST RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Market: https://amzn.to/35lnjQy
WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK
Short-term trend (DAILY CHART) – LOWER. SPX fell from 4158 to 4108, a relatively mild 50-point drop. Futures are flat on Sunday night but that could change in the morning.
Long-term trend (WEEKLY CHART) – LOWER. SPX is below it’s 50-week and is nearly even with its 100-week MA. This means that the long-term view is leaning bearish.
MACD (WEEKLY) = LOWER . The WEEKLY MACD is below the zero line and below the 9-day signal line. It’s not a pretty picture.
RSI: (S&P 500) @50.14 (DAILY) NEUTRAL. RSI is right on the 50, which means SPX is neither oversold or overbought. We will have to wait for additional clues this week before taking a position.
Daily Intraday Volatility (VIX) = 24.79 = NEUTRAL: VIX is slightly elevated but nothing to write home about. We are not getting meaningful clues from the VIX right now.
Comment: After a spectacular one-week rally, SPX and the other indexes took a breather. If this was a bull market, the rally would have continued a lot longer than a week. This tells me we are in or about to enter a bear market. Unless there is a strong and lengthy rally, you must assume the worst (at least I do).
On the other hand, there is so much bearishness it’s possible we will get another surprise rally. However, even if there is a rally, it’s unlikely it will last for long. That simply confirms we’re in or about to be in a bear market.
If a bear market is confirmed (20 percent lower from its recent high), it will not be fun and games. It’s a good time to raise cash, to look for good stocks but also aim to buy them at much lower prices. Many value investors welcome a bear market because they can finally buy their darlings at reasonable prices.
On the other hand, a bear market is a difficult trading environment for most people, especially buy and hold investors. Look at Netflix, for example, dropping from $700 to $198 within six months.
There are other stocks like Netflix where its true value is extremely distorted. No one knows which stocks are obscenely overbought and which ones are trading at fair value. Unfortunately, in a bear market, even many great stocks get hammered. Expect and prepare for a difficult trading and investing environment.
Advice: If anyone claims to know what the market is going to do next, don’t believe them!