Mid-term: The S&P 500 spurted higher last week but is still slightly below its 200-day moving average = Bearish. The longer it remains below its 200-day MA, the more bearish it is. It must rise above the 200-day MA and stay above for the bulls to take control.
One-month trend = Bullish. SPX has worked hard, with the Fed’s help, to rally above its 50-day moving average. Nevertheless, at this writing, it has still not risen above its 100-day or 200-day MA. Until then, the bear case is still possible, and in play.
RSI: (S&P 500) @ 52.53 = Neutral. The market could go in either direction this week but futures are lower on Sunday night.
MACD: MACD is slightly above its zero line and slightly above its 9-day Signal Line = Neutral to Bullish
Daily Intraday Volatility (VIX): 37.19 = Relatively High. Volatility remains elevated. Expect volatile trading days.
Comment: The indexes started the week with a spectacular rally (small caps rallied 10% in 3 days) before and during the Fed meeting. Just when it appeared as if SPX would rise above its 200-day moving average (and also while hitting key Fibonacci technical levels), SPX retreated (they gave back nearly all of the gains). On Sunday night, the futures are lower and it appears as if the rally has run out of steam, at least for now.
As the market climbed higher last week, traders wondered if that was a bear market rally, another word for a Bull Trap. That is when the bulls believe the worst is over and they buy at the top of a rally, only to watch it reverse direction.
I spoke to a buy and hold investor friend of mine who has all of his money in various indexes. He was down as much as 30% a month ago and now is down only 13%. He is thinking of selling but “only when I get back to even.” You heard it here first: Many investors are not going to sell until they get ALL of their money back.
For my friend’s sake, I hope he succeeds. But I have seen this scenario before with individual stocks. You lose money, you get 75% of the money back, and you get greedy. You want 100% of your money back so you don’t sell. Then the stock plunges. I’m not predicting this will happen to the SPX, but it’s possible. After all, the economy is not in a good place and we have not solved the virus problem.
Bottom line: This will be another fascinating week. The Fed helped the market last week with monetary and fiscal injections, and helped to smash the bears…for three days. This week we will find out who really has the winning hand. I’m also curious if the Fed jumps in again to “save” the market if it starts to get ugly again. We shall see.
Once again, I recommend that you read the following pieces. Be sure to watch the video from Sven, which gives a bearish analysis of the market environment:
Sven Henrich @ Northman Trader on the failed rally last week: https://bit.ly/3fcdCUG
Lance Roberts @ realinvestmentadvice.com on why selling in May makes sense this year: https://bit.ly/2WlZmjD
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:www.wolfstreet.com