This is what the technical indicators are telling us this week:
One-month trend = Neutral. SPX is above its 200-day MA but the uptrend was broken last week, at least temporarily. Note: SPX is at 3426 on Sunday night, lower from a week ago. The 200-day is at 3092. On Monday night, SPX futures are slightly higher while the Nasdaq futures are flat.
Mid-term (50 and 100-day MA) = Neutral. The S&P 500 is above its 50- and 100-day MA but pointing down.
RSI: (S&P 500) @ 53.38 (Daily) = Neutral. The RSI on SPX and the other indexes have returned to neutral.
MACD = Neutral. MACD is above its zero line and is even to slightly below its 9-day Signal Line.
Daily Intraday Volatility (VIX): 30.75 = Neutral. VIX is above its 200-day moving average, which reflects that some fear appeared last week.
Comments: I hope that you put in your trading diary that when RSI gets in the danger zone (above 70 or below 30), pay attention. RSI zoomed over 80 early last week, and the next day, the market sold off fast and furiously. Although RSI doesn’t always react so quickly, it worked perfectly this time. The indexes were extremely overbought and a severe selloff was the result.
Now that the indicators have returned to neutral levels, many believe that all is well. All is not well. First, the futures market is indicating a mixed market, which is always a warning sign. Second, it’s possible the selloff is not over.
The market was damaged last week, and it needs time to repair. It’s unknown what is going to happen this week, so be on guard for anything.
The charts do not look pretty at the moment, so keep your eye on the 50-day moving average. If that is breached, the selloff could continue. If the bulls can hold the 50-day, then the damage can be repaired.
The lesson is that the market can change from blue skies to a thunderstorm in seconds. Many bullish investors got too overconfident and fearless, as reflected in RSI and the VIX. And now we’ll see if the bears can take advantage or not.
Bottom line: Be on guard as anything is possible. The bulls need a calm market this week, while the bears want to take advantage of the increased volatility. Let’s see who makes it to the Winner’s Circle.
Below is further market analysis by Lance Roberts and Sven Henrich:
Lance Roberts @ realinvestmentadvice.com was right about the market decline, and now wonders if the market rally is over: https://bit.ly/33dvDwS
Sven Henrich @ Northman Trader discusses the intense selloff last week, and the damage that was done: https://bit.ly/3h9dkOj
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