MY NEW BOOKS: My two newest stock market books will be released on May 24th (but they are available at most Barnes and Noble bookstores right now). Here is the link to Understanding Stocks (3rd edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Market: https://amzn.to/35lnjQy — I also discuss how to manage corrections and bear markets — and examine the most important indicators and oscillators.
WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK
Short-term trend (DAILY CHART) – LOWER. SPX fell for the seventh week in a row, from 4123 to 4023, a dreadful 100-point drop. If it wasn’t for Friday’s rally, it would have been a lot worse. The daily chart looks awful as SPX is below its 50-, 100-, and 200-day moving averages. Perhaps the only good news is we are getting oversold, so a monster rally is possible, and likely (more on this later).
Long-term trend (WEEKLY CHART) – LOWER. SPX fell below its 50-day on the weekly charts, and also fell below its 100-day moving average, a ominous sign. The only good news on the longer-term trend is that SPX is still above its 200-day MA (ditto on the Nasdaq and the Dow weekly chart).
MACD (WEEKLY) = LOWER . The WEEKLY MACD is below the zero line and the 9-day signal line. Still not good for the bulls (but it’s a lagging indicator so this is not a huge surprise).
RSI: (S&P 500) @38.81 (DAILY) OVERSOLD. RSI did fall to 30 last week and as if on cue, SPX bounced back. Often, RSI has a canny ability to warn of overbought and oversold conditions. It worked perfectly last week.
Daily Intraday Volatility (VIX) = 28.87 = ELEVATED: VIX is higher than 20 (typically a normal reading), but the current reading (28.87) does not reflect much fear or anxiety among option traders. Maybe they know something we don’t!
Comment: Investors and crypto traders took the brunt of the financial pain in the last seven weeks. For many, this is a rare experience (and not in a good way).
The good news: As Lance Roberts said in his recent blog, “It’s so bearish it’s bullish,” and he’s right. We could have a strong rally in the short term. The pain that investors felt over the last month or so is extremely painful to their egos and account. Nevertheless, many if not most are holding on for dear life. A few couldn’t take the pain and exited.
The bad news: Although there might be a “blow-your-socks-off” rally, it may not last long. Nasdaq is already in a bear market (down 20 percent from its recent high), and the S&P 500 and the Dow are creeping closer. Once the media proclaims a bear market, and it will be big news, that will set off emotional alarm bells in many investors, and they will sell.
The market is exhibiting classic bear market behavior, and if this is confirmed, expect some rocky times ahead. It’s likely we will have another rally that will lure many bulls back in, only to plunge once again, but even harder. This is not a prediction but it’s likely based on past bear markets.
Don’t forget that bear markets typically last as long as a year, and if true, it will test the patience and emotions of many new investors and traders. If SPX and Dow fall into bear market territory, remember that every bear market is different. No one can predict which way it will go this year and how long it will last (assuming it actually develops).
Bottom line: As I’ve said many times before in this blog, be prepared for rocky times ahead. There are different ways to make money, mostly if trading, but it’s a challenge. Investors, on the other hand, need a lot of patience during this unstable times.