Bullish or Bearish? Week of Oct. 29, 2018

Here are the most recent market indicators:

S&P 500 one-month trend = Bearish  (The uptrend is broken. Caution is advised). 

S&P 500 is below its 50-day, 100-day, and 200-day moving averages = Bearish

RSI: (S&P 500) @30.34 = Oversold (Rallies are possible)

Intraday Volatility: Moderate to High 

Comment:  As I warned last week, this could get ugly real fast and it did. Once the indexes fell below its 200-day moving averages last week, volatility increased along with selling. The technical indicators are awful with one exception. The RSI is oversold, so a strong short-lived rally is likely. Volatility will continue as the bulls and bears fight it out.

Right now, the market is in a correction. However, and this is important, it’s too early to say if this will turn into a bear market. Corrections typically last no more than a month, so it’s possible we’ll have that hoped-for Christmas rally. Unfortunately, the market has been severely damaged, so it will take some time for it to recover. The last two corrections bounced back fairly quickly, and it’s possible it will happen again.

Unfortunately, we could also be heading right into a bear market (20 percent or more decline that can last for a year). If we do, it will get even worse from here, with occasional one-day rallies that gives hope to bullish investors. No one can predict which scenario will play out, but you should be prepared for both.

When there are strong rallies, take the opportunity to sell losers and move to cash. If you are a trader, you will primarily be shorting rallies (with puts) rather than buying on the dip, but you can do both. Corrections and bear markets are difficult to maneuver, so it takes practice and experience. One thing for sure: If we do enter a bear market, it will test the patience of buy and hold indexers who will not sell (at first). And who can blame them? After the last bear market and two corrections, the market bounced back. Since people often rely on the past to predict the future, most investors will sit tight even if a bear market ravages their portfolio.

Perhaps this will be a typical correction and all be well by January. But if it’s not, make plans now so you are not forced to sell at the worst possible time. Shred the losers, evaluate your portfolio, and learn how to survive and thrive in bear markets. One thing I can say with confidence: The great bull market that started in 2009 appears to be faltering as we head into uncharted territory.

Bottom line: Watch this week to see if the bulls can win more than a day, or if any rallies reverse during the day. The bulls desperately need to win this week and bring the indexes back above its 200-day moving averages. We’re all waiting breathlessly to see if they succeed, or not. 

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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

I will notify you of my blog posts via twitter @michaelsincere

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