WHAT THE INDICATORS ARE SAYING
This is what the technical indicators are telling us this week:
One-week trend = LOWER. SPX plunged from 4328 to 4204 last week, a 124-point shellacking. SPX is still well BELOW its 50-day moving average on the weekly but above its 100-day MA. After five losing weeks in a row, the bulls need to win one. Futures are higher on Sunday night but that could change in the morning.
SPX 50-day (WEEKLY) = LOWER. As mentioned above, as long as SPX is below its 50-day MA, it’s temporarily unsafe to go long in the short term. Long term investors are holding on for dear life (HODL), hoping the selloff will end soon.
RSI: (S&P 500) @37.14 (WEEKLY) OVERSOLD. RSI is strongly oversold and close to being extremely oversold. A snapback rally is likely, which is good news for the battered bulls.
MACD (WEEKLY) = BEARISH: The weekly MACD is below the 9-day signal line and below the zero line. MACD is firmly bearish.
Daily Intraday Volatility (VIX) = 30.75 = ELEVATED: Option traders are still gobbling put options for protection and speculation. The VIX is high but not at extreme levels (i.e., over 50).
Comment: It’s been many years since we’ve had a market environment like this. My concern is that we will have a drip-drip-drip correction (or worse), which is what has happened during the last month. Under this scenario, we will get a few days down, followed by one day up. By the end of the week, however, the market will be lower.
A slow-moving downtrend (as outlined above) would be the worst-case scenario because volatility will be subdued, rallies will fail, and it’s difficult for anyone to make money.
Traders thrive on volatility so a subdued selloff is a difficult environment. Also, investors simply hate a selloff that slowly erodes the value of their portfolio. Even some of the great stocks will fall along with everything else. I truly hope this slow selloff doesn’t continue for very long.
Bottom line: SPX broke below its 50-day MA. If it breaks below its 100-day, investors will be in a world of pain. It is too early to declare a correction or a bear market, but red flags are everywhere. It’s time to make a plan of what to do.
Hint: Watch the rallies for clues. For the last month, every strong rally has been followed by a strong selloff. That is not a good sign at all. On a positive note, on Sunday night there were signs of a peace agreement between Russia and Ukraine. Let’s hope it is the real deal.
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’ latest newsletter:www.realinvestmentadvice.com
For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com