This is what the technical indicators are telling us this week:
One-month trend = Bearish and broken. As you know, something went wrong last week, and it wasn’t just the market. GME and AMC caused the order flow “plumbing” to clog. Until it’s fixed, caution is highly recommended. The indexes fell hard last week, closing at 3714 on the SPX, lower by 127 points. Futures are lower on Sunday night (but reversed direction overnight and opened higher).
Mid-term (50- and 100-day MA) = Neutral. The S&P 500 plunged last week, falling 1-point below its 50-day MA but above its 100-day MA. That happened fast!
RSI: (S&P 500) @ 43.27 (Daily) = Oversold. RSI fell with the indexes. It needs to fall below 30 to become extremely oversold. *(made corrections)
MACD (Weekly) = Bullish. MACD is above its zero line and slightly above its 9-day Signal Line. Remember, this is a Weekly MACD.
Daily Intraday Volatility (VIX): 33.09= Suddenly, there is fear. VIX spiked from the low 20’s to the 30’s. Investors were reminded that the market can go down for longer than a day.
Comment: Last week’s market action was extremely unusual. First, when the Fed meets, the market tends to drift higher before and during the meeting. The fact that the market plunged last week while the Fed was meeting was a red flag.
As you know, GME spiked to obscene levels, severely damaging the accounts of several hedge funds (who had large short positions), and individual traders who took on too much risk (i.e. selling naked calls).
If you want a deeper analysis of what happened last week, I suggest you read this piece by ZeroHedge. It’s a little technical but tells how things went horribly wrong: https://bit.ly/3ahThMc (Lesson #1: Don’t sell naked options, and if you do, trade small.)
Back to the current market: The futures are somewhat lower on Sunday night. I assume that because of the selloff last week, a number of traders are going to “buy the dip.” This strategy has worked before when there was a selloff, and it might work again. Nevertheless, caution is advised. * Monday night note: Once again, buying the dip worked as the indexes rallied.
Bottom line: Something went wrong last week, but it’s too early to know exactly how this will play out. I’m sure there are many high level meetings at financial institutions right now. Last week could be an aberration that will quickly be forgotten, or in a worst-case scenario, it could lead to more problems, and a more volatile market. No one can predict what is going to happen this week, but it should be fascinating.
Note: I wrote an article for MarketWatch last week on the importance of testing in a simulated account before buying. This is excellent advice if you are a beginner, or if you need to test a strategy: https://on.mktw.net/3j5z5Rv
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: https://wolfstreet.com