Bullish or Bearish? Week of Nov. 11, 2019

S&P 500 is above its 200-day moving average = Bullish  

S&P 500 is above its 50-day MA = Bullish

S&P 500 one-month trend: SPX is in a strong uptrend.

RSI: (S&P 500) @ 70.22 = Extremely Overbought. SPX is in the danger zone, and although it can keep moving higher, a pullback is imminent.

MACD: Above Zero Line and above Signal Line = Bullish

Daily Intraday Volatility: 12.07 = Extremely Low (Bearish)

Comment: It’s rare to see such overbought conditions. With positive news regarding China, the Fed’s continuation of QE ($60 billion+ a month), and low interest rates, the market appears to be headed to the moon. But anyone who studies the stock market knows we’re in the danger zone. With a RSI of 70 and a VIX at 12, it won’t take much to reverse this market. Also add in the fact that my investor friends are bragging again, always a sign we are at or near a top.

Can the market go higher from here? Yes, it can, which is why you never short an uptrend. But wise traders and investors are on the lookout for signs of a stall and reversal. Typically, that first pullback will catch most people by surprise. Don’t waste your time figuring out “why” the market pulled back (after it occurs). But do spend your time evaluating whether the pullback is short-term (buy on the dip) event, or a longer-term selloff.

Why am I so confident there will be a pullback? Because we’ve gone too far and too fast, investors are giddy, and some of the technical indicators I follow are flashing warning signs. The algos are doing everything possible to keep this market propped up with help from the Fed, and so far they’ve been successful. But when investors and institutions get spooked one day, and they should in the near future, the pullback will be intense.

Investors who don’t read the clues or indicators are perhaps afraid to miss out on the so-called “Christmas rally.” This is what happens at market tops: the ones who resisted buying until now throw caution to the wind and jump in, almost always at the wrong time. As I said, the markets could go higher from here, but the risks are too great and the rewards too small at these overbought levels.

Bottom line: You have to make your own decisions what to do, but I personally have not seen such extreme overbought conditions in many years. Traders with more experience than me have made similar observations. Therefore, go long if you must but tread cautiously.

Note: Monday is Veteran’s Day but the markets are open. To all veterans: Thank you for your service.


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

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