PART 1: WHAT THE INDICATORS ARE TELLING US
This is what the technical indicators are telling us this week:
One-month trend = Neutral. The SPX stalled during the week, falling by 32 points from a week ago to 3911. Even with kind words from the Fed, the market was unable to move higher last week. Futures are lower on Sunday night, but that could change in the morning.
Mid-term (50- and 100-day MA) = Neutral. The S&P 500 fell last week, once again breaking the weekly trend, but remaining above its 50-day moving average.
RSI: (S&P 500) @ 62.48 (WEEKLY) = Slightly overbought. RSI pulled back slightly along with the market.
MACD (WEEKLY) = Neutral. MACD is above its zero line and even with its 9-day Signal Line. It’s a coin toss.
Daily Intraday Volatility (VIX): 20.95= The VIX didn’t budge from a week ago. It’s telling us there is still no fear.
Comment: It’s been a long time since all of the indicators I follow turn up with the same result: NEUTRAL. Anyone who can tell you what the market is going to do this week is a fortuneteller. However, there are some clues that may help us with our forecasts, but nothing definite.
After the Fed said at their meeting they are keeping interest rates unchanged and low, the market initially rallied before pulling back for the next two days. Whatever the Fed was selling, the market didn’t seem to buy.
The Fed needs interest rates low for the economic recovery to continue. If inflation rears its ugly head, and if interest rates start to rise, the Fed might be forced to raise interest rates. That would not be a pretty sight for the stock market, or real estate.
In an ideal world, the Fed would have room to cut interest rates, especially with a shaky recovery. But in the real world we are in, rates are near zero and there is no room to cut.
Let’s hope that inflation does not heat up, and that interest rates remain low. If either of these things happen, it will not be a pretty sight. Be prepared for the worst, however.
Bottom line: The market is on shaky ground, so caution is advised. It’s been an amazing 12 year bull market but the clues point to a dangerous storm ahead, especially if interest rates rise. Keep your eye on the Fed’s Fund Rate, too.
PART 2: THE TEST TRADING STRATEGY
Because of a more challenging market environment, we will only use the Test Trading Strategy on the days when the futures are pointing much higher. On the flat or down days, we use other strategies (such as buying puts, or hedge), or not trade at all.
Last week, we only had two days that we were able to find winners. It was not an easy week! Let’s hope we get better opportunities this week, but we will let the market guide us. We do not force trades or make the market bend to our wishes. We follow the market, and try not to predict what it will do.
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