Bullish or Bearish? Week of Sept. 13, 2021

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

One-week trend = Lower. The bears took control all week. SPX fell from 4535 to 4458, a painful 77 point drop. Futures are HIGHER on Sunday night, but in the morning anything is possible.

SPX 20-day moving average (WEEKLY): Uptrend. SPX is still above its 20-day moving average. To breach the short-term 20-day MA, the market will need to keep falling. We are not there yet.

RSI: (S&P 500) @65.69 (WEEKLY) = Slightly Overbought. Not surprisingly, the market fell last week after RSI hit extreme overbought levels. Criticize technical analysis if you want, but RSI was right on target, warning us of trouble. Now RSI has fallen to only slightly overbought. RSI is telling us the market is not out of the woods yet.

MACD (WEEKLY) = Neutral. Yawn, nothing to see here. The weekly MACD is giving mixed signals. MACD is above its zero line, which is bullish. The MACD line is even with its 9-day signal line, a neutral reading. Note: MACD does not work well when SPX volatility is low (and the indexes are at all-time highs). However, MACD still works with volatile individual stocks. 

Daily Intraday Volatility (VIX) = 20.95 = Wow! VIX actually popped last week as a touch of fear entered the market. The VIX is still on the low side even though it’s out of the basement. This means more fear is possible, but not guaranteed.

Comment:  With last week’s low VIX and high RSI, it was obvious that trouble was coming, and it arrived. Five down days in a row. The bulls did a good job of preventing a massacre, but the bears finally flexed their muscles. We shall see if it’s a the beginning of a downtrend or a five-day wonder.

The algos, using the S&P futures contracts, are doing their best to convince everyone that last week was an outlier. Futures are a bit on the sleepy side but they are higher on Sunday night. It will be fascinating to see if the bullishness can carry into the morning. All eyes will be watching the opening bell.

I can tell you this: If the market opens higher and reverses direction during the day, that would be a negative sign. The bulls need a strong showing this week to keep the bears away.

I am watching RSI, which is still overbought. According to classical technical analysis, it was not a great sign when RSI sliced through the 70 on its way to 65. Keep your eyes on the major indicators for clues, and any signs of a reversal.

Bottom line: The bulls are desperate to take back control after losing five precious days. Let’s wait and watch to see if they succeed.


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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’ latest newsletter:www.realinvestmentadvice.com

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

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