WHAT THE INDICATORS ARE SAYING
This is what the technical indicators are telling us this week:
One-week trend = LOWER. Last week was a sad one for the indexes, culminating in a selloff for SPX, which FELL from 4500 to 4418, an 82-point shellacking. Back and forth we go between the bulls and bears until someone dominates. Futures are FLAT on Sunday night.
SPX 20-day (WEEKLY) = BELOW. SPX is still BELOW its 20-day moving average but ABOVE its 50-day MA. It’s still a red flag on the weekly but there is no reason to worry too much until the 50-day is breached.
RSI: (S&P 500) @45.67 (WEEKLY) NEUTRAL TO SLIGHTLY OVERSOLD. RSI could go in either direction. It’s in the neutral zone where most traders get chopped up. No significant signals at this time.
MACD (WEEKLY) = BEARISH: The weekly MACD is below the 9-day signal line and headed directly for the zero line. Unless the market can be saved this week, MACD “could” reach the zero line. That would be a strong bearish signal. Right now it’s slightly bearish with room to reverse direction.
Daily Intraday Volatility (VIX) = 27.36 = ELEVATED: Volatility is back, which means option traders are gobbling up puts for protection. That also means the cost of options is rising (along with everything else). The warning signs are there – this should be an interesting week.
Comment: When I put all of the clues together, I see a bearish picture. VIX is elevated, MACD is headed towards the basement, SPX is below its 20-day and the weekly trend is down. On the plus side, we have seen this scenario in the past, and in the past the market staged a remarkable recovery. It could happen again.
On the other hand, this is not the same market as a year ago. Inflation is heating up, the Fed is warning they will raise interest rates (they may be forced to), there are geo-political concerns, and oil has spiked (probably because of the threat of war). Add in a 13-year bull market and it looks bleak.
No one can tell you what is going to happen this week. Most investors have been trained to “stay the course” and that has worked. The market is hanging on for dear life right now but anything is possible. That’s why it’s a waste of time to make a prediction.
I know some readers don’t want to hear it but there is always the possibility of a bear market. That would be the worst scenario, especially if it lasted a long time. The best scenario would be a short-lived correction. With that scenario, the indexes would drop by less than 20 percent, and bounce back relatively soon. Corrections are necessary on occasion to remind over-confident investors that markets do go down sometimes.
Bottom line: It’s been an unpleasant few weeks, especially for those holding technology stocks. It appears as if many fund managers are moving into recession proof stocks while dumping technology. Keep that in mind as you attempt to maneuver in an extremely treacherous trading environment. Not many are going to make it to the Winner’s Circle this year.
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