Here is a link to my most recent book, Make Money Trading Options, which introduces a new trading strategy for advanced beginners: Amazon link: https://amzn.to/3kqw5zQ. Barnes and Noble link: https://bit.ly/3rbr28Q Hint: First read my book, Understanding Options, if you are an options beginner: https://amzn.to/2S04nQs
Here is a link to my most recent article on MarketWatch, “Don’t Be a Sitting Duck When This Stock Market Rally Fades”: https://on.mktw.net/3uUEIqK
WHAT THE INDICATORS ARE TELLING US
This is what the technical indicators are telling us this week:
One-month trend = Volatile. The bears temporarily took control last week. To be precise, SPX fell by 59 points during the week, from 4232 to 4173, but it could have been a lot worse. After a vicious three-day selloff, the indexes recovered on Thursday and Friday. The market appeared to be headed for the abyss until the dippers stepped in and saved the day. Futures are lower on Sunday night, and bitcoin is getting smashed in the premarket.
Mid-term (50- and 100-day MA) = Bullish: SPX and the other indexes fell to their 50-day moving averages during the week but suddenly reversed direction. Now, the indexes remain well above their 50- and 100-day moving averages.
RSI: (S&P 500) @ 68.10 (WEEKLY) = Slightly overbought. RSI warned everyone the market was overbought and sure enough, the market plunged last week. Now you know that RSI is reliable when evaluating SPX and other indexes. Pay attention when it reaches overbought territory (above 70).
MACD (WEEKLY) = Bullish. MACD is above its zero line and above its 9-day Signal Line. Until MACD gives a sell signal, the bull market is intact.
Daily Intraday Volatility (VIX): 18.81 = VIX is out of the basement for the moment as a dose of fear entered after the inflation numbers were released, the highest in 13 years.
Barchart Stock Evaluator for SPY and QQQ (link below): SPY is an 88 percent buy, while QQQ is a 55 percent buy (according to this indicator). Only a week ago both securities were 100 percent buys. A little fear entered the market last week.
Comment: That three-day selloff really spooked investors for the short-term. The selloff might continue into this week as the futures are lower. We are really in uncharted territory and few can accurately predict what is going to happen. Yes, we are overbought, but last week we were really overbought. For specific ideas of what to do, read my article on “Don’t be a Sitting Duck” (link at top).
As I wrote in the article, this is the time to be diversified, and to raise cash if possible. Timing the market is difficult and yet, buying overbought stocks at all-time highs is risky as well.
What I am looking for: I want to see if last week’s two-day rally fails this week. If it does, it could get ugly fast. It’s been a long time since the market has experienced this much volatility, so fasten your seatbelts.
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