Bullish or Bearish? Week of October 4, 2021

WHAT THE INDICATORS ARE SAYING 

This is what the technical indicators are telling us this week: 

One-week trend = DOWN. The bears won the week even after Friday’s 500 point Dow rally. SPX plunged from 4455 to 4357 in the last week, a vicious 98 point hit (but it could have been worse. The bulls received a gift of 50 SPX points on Friday.) For the first time in a long time, the bears took control, snapping a 6-month winning streak. Note: There is a lot of activity in the futures market. At the moment, futures are LOWER on Sunday night but that may change in the morning.

SPX 20-day moving average (WEEKLY): DOWN. SPX has dropped below its 20-day moving average on a weekly chart but is still above the 50-, 100-, and 200 MA. However, on the daily chart, it is downright ugly. On the daily, SPX has dropped below the 50- and 100 MA. Since I am a weekly trader, I don’t see a disaster. Instead, I see a red flag on the weekly chart. The bulls should attempt to save the market this week and keep Friday’s rally going on Monday and beyond.

RSI: (S&P 500) @55.67 (WEEKLY) = Neutral to slightly overbought. It was only a week ago that RSI was above 70 and was a warning to anyone who’d listen it was in the danger zone. Now it’s only slightly overbought at 55.67 (which means there is still room for SPX and the other indexes to fall).

MACD (WEEKLY) = LOWER. The weekly MACD is giving mixed signals: The MACD line is below its signal line (bearish) but above the zero line (bullish). However, the daily MACD is awful. MACD is below its signal line and the zero line. The weekly tells me that you shouldn’t panic yet (if you are long). There is still time for the bulls to save this market.

Daily Intraday Volatility (VIX) = 21.15 = VIX has creeped up a bit higher but there is still little fear. It will take more than a 100 drop in the SPX to scare the bulls.

Comment:  It was a terrible week for the bulls but after 13 bullish years, this was not even a hiccup. This week is important as we will find out if the selloff has legs.

The bulls will try to keep the momentum from Friday going into Monday. Here’s what to look for: If the upcoming rally (i.e., multiple rallies) fail(s), that is a huge red flag. However, this is the chance for the bulls to prove the party has not ended.

Unfortunately for the bulls, it’s tough to convince investors that all is well when inflation has reared its ugly head, when the bull market feels exhausted, and when interest rates remain artifically low. There’s a lot of danger signs and yet, the bulls have pulled a rabbit out of hat so many times I wouldn’t count them out.

This is not an easy trading environment. Investors are feeling dizzy and traders are getting whipsawed. Please think about containing risk by trading smaller size and being extra cautious.

Bottom line: Predicting this market is near impossible so I won’t even try. The market is slightly overbought and there is little fear, a recipe for problems. And yet, here we are, 13 years later……… (Tick…tock).

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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’ latest newsletter:www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com

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