WHAT THE INDICATORS ARE TELLING US
This is what the technical indicators are telling us this week:
One-month trend = Bullish. Although the indexes struggled to gain traction early in the week, it found its footing on Friday, when SPX rallied by 65 points. Last week, SPX rose from 3911 to 3974 , or 63 points. As you can see, all of the gains came on Friday. Futures are slightly lower on Sunday night.
Mid-term (50- and 100-day MA) = Bullish: SPX bounced off of it 50-day moving average and rallied strongly later in the week. On Friday, the bulls took control. Let’s see if they can take the indexes even higher.
RSI: (S&P 500) @ 64.82 (WEEKLY) = Slightly overbought. RSI rose slightly with the market. It’s not yet in the danger zone (i.e. 70).
MACD (WEEKLY) = Neutral. MACD is above its zero line and even with its 9-day Signal Line. It’s another coin toss.
Daily Intraday Volatility (VIX): 18.86= The VIX fell from a week ago, reflecting the lack of fear in the marketplace.
Comment: Remember, this is a four-day week. We will have to wait and see if the bulls can keep the rally alive. Even with the Friday rally, it’s not an easy trading environment.
Certain individual stocks are getting smashed or are faltering while the SPX rallies. On many days, its a divergent market: The Dow and SPX rally while the Nasdaq falls. Many of the stocks that were most popular over the last few years are struggling, or flatlining. I’m talking about Amazon, Netflix, Nvidia, and Google.
If you have studied bull markets in the past, one of the clues that the end is near is when the strongest stocks struggle, like what is happening now. In addition, if interest rates rise (see the federal funds rate) because of inflation, that would end the party very quickly.
As a trend trader, it’s been difficult to find winning positions. As many of you know, I use a paper money program to find winners (i.e. the test trading strategy), but finding winners has been a challenge (until Friday).
1. You can trade less each day, trying to identify winners on the best trading days.
2. You can wait on the sidelines for a better entry. The market is an auction. Ideally, you want to buy at lower prices and sell at higher prices.
3. You can use intraday trading strategies (i.e. scalping) to eke out small gains.
4. it’s a good time to learn how to buy put options. I can’t tell you when, but bull markets always end. After 12 years, many investors are playing with fire.
Bottom line: After Friday’s bullish rally, I would not be surprised to see a short-term pullback. And yet, as the holidays approach, we could see more buying enthusiasm. My advice is to be on guard but look for trading opportunities when they appear.
Note: I’ve talked to professional traders who are shocked at the mindless bullishness that exists in the market right now. Although no one can time the end of a bull market, I believe we’re getting closer.
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