Here are the most recent market indicators:
S&P 500 one-month trend = Pivot (The trend is still broken. Caution is advised).
S&P 500 is below its 50-day and 100-day moving averages = Bearish
S&P 500 is nearly even with its 200-day moving average = Neutral to Bearish
RSI: (S&P 500) @36.23 = Near oversold (a rally is possible)
Intraday Volatility: Moderate to High
Comment: If you wanted excitement, the place to be was the stock market. After 10 years of relatively low volatility and an uptrend, the market has acted like it’s had a case of indigestion. If you’re an investor who has been used to a relatively calm uptrend for the last ten years, the increased volatility is a new and strange environment. Although the market has experienced short bouts of volatility in the past, volatility is lasting longer, and it’s possible it will be with us for a while until something breaks.
While many traders are enjoying the volatility (if they are experienced), it’s not an easy environment to trade. For example, last week the SPX had major pullbacks and a huge rally but the SPX ended exactly where it started! Believe me, that is not a healthy sign. When you put it all together, the market has a very bearish tone. In fact, the stock market is in serious trouble right now, and few realize it.
Although it’s possible the market will get through the next few weeks unscathed, it’s unlikely. One strategy that worked last week was shorting the rallies. Nearly all of the intraday rallies failed.
Even with all this negativity, it’s important you do not enter the market with a negative bias. I have learned the hard way that you only look at the facts, ie. what the market is actually doing, and not make big bets in advance of the market direction. You can make a very good living by being a little late to the party (bull or bear).
Right now, look closely at the 200-day moving average. For the bulls to keep control, they must defend the 200-day moving average, and they will try. But as soon as the 200-day is breached, and SPX or the DOW falls below it for more than a day or two, look out below.
This week should be a Battle Royale between the bears and the bulls. If you are rusty or inexperienced with bear markets, now is the time to get educated. Start with Jesse Livermore’s books (i.e. Reminisces of a Stock Operator), and read one of my favorites, Jesse Livermore Boy Plunger by Tom Rubython, a biography about Livermore. I learned more from Rubython’s book than almost any other.
Bottom line: Get out the popcorn as the market made a major pivot two weeks ago. It’s October, investors are nervous but hopeful, and the bears are licking their chops. This could get real ugly real fast so bring your “A” game.
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