Bullish or Bearish? Week of Dec. 17, 2018

Here are the most recent market indicators:

S&P 500 one-month trend = Downtrend (major Pivot Point)

S&P 500 is below its 200-day moving averages = Bearish 

RSI: (S&P 500) @36.43 = Oversold = Bullish 

Daily Intraday Volatility: Moderate to High 

Comment:  Now you know what a bear market feels like! Judging by the chart and the action from last week, the market is in a downtrend. Sentiment is awful: Investors Intelligence has the most bearish readings in five years. Mutual fund outflows were the highest in years. Everywhere you turn, there is negativity. In addition, this is the worst December for the S&P since 1980. The investor chatrooms are overwhelmingly negative. Adding to the doom and gloom, the Fed seems to be indecisive and nervous.

Believe it or not, because sentiment is so negative, it would not surprise me to see a huge rally this week, so be prepared. RSI is also telling us the market is oversold (another reason a rally is likely). 

The Fed has a difficult balancing act at their meeting (Dec. 18 and 19th) this week. If they raise rates too high, the market will protest (as it is doing now). If they stop raising rates, people will wonder if the economy is worse than they are admitting. More than likely, the Fed will raise rates by a quarter point this week but signal they will ease next year. If all goes according to plan, the market will rally strongly on their comments.  (If the market doesn’t rally on the Fed’s comments, then the problems are more serious than anyone realizes, or the Fed has lost credibility. Either scenario is not good).

No matter what happens this week, you have to change with the market. It is not easy to trade a treacherous bear market. Unfortunately, we could be in the 2nd inning of a 9-inning game. That means we have a long way to fall, but it probably won’t happen in a few days or weeks (i.e. crash). The most difficult market environment is a long and slow downward trend with occasional rallies. It is not easy to trade, or invest. On the way down, investors remind themselves to hold even though the pain from losses become excruciating (believe me, I’ve been there). They correctly remind themselves that Warren Buffett holds in bull and bear markets. For traders, the increased volatility is a double-edged sword. On one hand, profits can be made on the way down but it’s extremely difficult. Millions of nervous investors threw in the towel and moved to cash last week to ride out the storm from the sidelines.

Bottom line: The easy days of a bull market uptrend are over, so be ready. You will have to decide if you are a long term investor, trader, or in cash.  (Some will manage all three simultaneously.)

 

 

 

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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: www.realinvestmentadvice.com

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

Bullish or Bearish? Week of Dec. 10, 2018

Here are the most recent market indicators:

S&P 500 one-month trend = Downtrend (with multiple Pivot Points)

S&P 500 is below its 200-day moving averages = Bearish 

RSI: (S&P 500) @39.32 = Near oversold = Moderately Bullish 

Daily Intraday Volatility: Moderate to High 

Comment: As expected, last week’s Monday rally was a short-term blow off top, and the market plunged for the rest of the week. The market fell so fast in the last two days that we’re nearly oversold. Because no one wants to see a major selloff two weeks before Christmas, prepare for an upcoming rally, at least for a few days. Soon, the Fed, the White House, and Wall Street will make positive comments. The Fed has a meeting on Dec. 18th and 19th, so it’s extremely likely they will say something positive to instill confidence. 

However, after the Fed makes positive comments, if the markets keep falling, then it’s much worse than anyone imagines. For now, the Fed is feeling pressured and perhaps is unnerved by recent market action. In addition, they probably know that earnings are not going to be as strong as expected. They’re in a real quandary: If they don’t raise rates, it would scare the market. If they raise rates too much, it could break the market. So they are going to have to talk a good game to avoid a major selloff. For investors’ sake, I hope they succeed.

Bottom line: The easy days of a slow, uptrending market are over for now as volatility has returned in full force. The algos were Wall Street’s friend on the way up, and they will be their opponent on the way down.

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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: www.realinvestmentadvice.com

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

Bullish or Bearish? Week of Dec. 3, 2018

Here are the most recent market indicators:

S&P 500 one-month trend = Major Pivot (Possible Blow-off Top)

S&P 500 has moved above its 200-day moving average, and above its 50-day MA (on Monday): Bullish

RSI: (S&P 500) @54.68+= Near Overbought (likely to become overbought on Monday morning)

Daily Intraday Volatility: High (to Moderate)

Comment: Fortunately, we were prepared for the monster rally last week. Two weeks ago, it was mostly doom and gloom. 

It was surprising that Fed Chairman Powell completely changed the wording about interest rates, fueling an even bigger than normal rally. The futures are telling us the extreme rally will continue on Monday (Dow should open over 400 points). This is not the time to get greedy, and in fact, this is the time to reduce losing positions. 

In reality, not much has changed. Nevertheless, Wall Street and the government wanted a positive year, and they could get their wish. Unfortunately, eventually there will be a price to pay for financial engineering. It is still going to be quite a feat to keep the indexes elevated until January 1, but it’s very possible. Judging from the past, it would not be surprising if we limp into the end of the year with low to moderate volatility (that’s what Wall Street wants). However, we have a slew of economic data that will be released this week, so any negative surprises could send the market in reverse. 

When the selloff returns (don’t forget it’s only been a week since the last one), and it will eventually, investors will wish they had sold some of their stocks. 

What if the current rally continues into next year? In that case, you stay cautiously long while preparing for an even bigger correction. Eventually, all of these financial bubbles are going to pop.

One week does not change a dangerous market environment. The FAANG stocks are still in trouble, debt levels are sky high, the credit markets are showing signs of stress, and the snapback rally appears to be a bear market rally rather than a true trend change. 

Bottom line: Be careful out there whether you are short or long. If you’re not experienced, trade small. One thing for sure: When the selloff does come, it’s going to be one of the most profitable shorting opportunities in many years. As I’ve said in the past, this is the time to learn how to short, buy put options, or get out of the way. 

Reminder: The markets are closed on Wednesday because of the memorial to George HW Bush.

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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: www.realinvestmentadvice.com

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

Bullish or Bearish? Week of Nov. 26, 2018

Here are the most recent market indicators:

S&P 500 one-month trend = Down  (Bearish) The uptrend is broken and the trend is down. Nevertheless, rallies are still likely. 

S&P 500 is below its 50-, 100-day and 200-day moving averages= Bearish

RSI: (S&P 500) @35.50 = Near Oversold. A rally is likely. 

Intraday Volatility: Moderate 

Comment: You already know that last week was the worst since 2011, and the third worst in history for the indexes during Thanksgiving . The FAANG stocks got slaughtered (along with oil and bitcoin), losing over $1 trillion dollars in value. A month ago, investors were giddy about how much money they had been making, and now they’re anxious, but hopeful. As long as the indexes stay below its 200-day moving average, the bears are in control. That being said, we are near oversold (RSI), so a snapback rally is likely.  When that rally occurs (it could be on Monday), wise investors will take the opportunity to reduce positions on losing stocks. 

More than likely, and this is important, most rallies may fail to rise above its 200-day moving average. If the indexes are unable to rise above its 200-day MA, that will confirm we remain in a downtrend. Nevertheless, keep in mind that even in a downtrend, there will be these monster rallies (such as the 900-point Dow rally a few weeks ago). 

I can’t stress how important it is to learn and read about bear market environments, about shorting, and about the 1929 crash. Many investors are going to ride it out, and more than likely, there will be opportunities to get out with relatively small losses. But if this downtrend continues, and it gets worse, many of the most beloved stocks will reach levels that seem unimaginable at the moment. Last week, the FAANG stocks such as Apple lost a year’s worth of gains. If the downtrend continues, it could get worse.

In life, everything changes and so does the stock market. It is obvious to anyone who is paying attention that the market has changed, and that the “easy days” of the last 10 years are over. It is highly unlikely we will return to those days anytime soon. The sooner you realize that we have entered a new phase, and that increased volatility and whipsaws will be the norm, the better prepared you will be.

This is the time to reduce size if trading or increase cash if investing. They say that no one can time the market perfectly, and that is true, but if I see a speeding locomotive heading towards me, I will get out of the way. The flashing warning signs are everywhere, and although there will be still be rallies along the way, the market has entered a dangerous phase that should not be ignored. Here’s something else to think about: Just as we overshot on the upside, it’s possible we will do the same on the downside (not immediately, but in the future). Keep an open mind for any scenario and most important, be prepared.

Other: Wolf Richter wrote a fascinating piece on the bitcoin crash this weekend. It’s an excellent read: https://bit.ly/2AknCYo

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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: www.realinvestmentadvice.com

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

Bullish or Bearish? Week of Nov. 19, 2018

Here are the most recent market indicators:

S&P 500 one-month trend = Variable  (Bearish) The uptrend is still broken, but that could change if the indexes move firmly above their 200-day moving averages and beyond. 

S&P 500 is below its 50-, 100-day and 200-day moving averages= Bearish

RSI: (S&P 500) @46.75 = Neutral 

Intraday Volatility: Moderate 

Comment: This week will be shortened because of the Thanksgiving holidays. Be careful about trading on holiday weeks as it’s easy to get chopped up if you’re not careful. The uptrend has been broken and the FAANG stocks, which were on a nonstop ride to the moon, have been damaged. Investors are still not afraid, and in fact, many are buying on the dip.

I’m going to refrain from calling the current market a bear (or bull) market. Instead, I will call this market dangerous and deceptive. One of the most deceptive parts is that you will often get monster rallies that keep investors hopeful and in the game. It’s very possible we’ll have a Thanksgiving-Christmas rally (if we don’t, it means things are worse than anyone realizes). For the bulls to win this week, they will need to bring the indexes above their 200-day moving averages, and stay above. If they are unable to do this, it would be a danger signal.

Even with the likely rally this week, this is a damaged market and caution is advised moving forward. 

As I’ve repeatedly suggested, this is the time to learn how to buy put options (shorting is for the pros). Some people will buy inverse ETFs, which must be monitored closely. If betting against the market is not in your comfort zone, increasing cash is suggested for diversification and safety. Last week, shorting the rallies worked very well for the first three days. By Friday, the algos took control again and kept the markets calm. 

Bottom line: A holiday rally is possible for Monday and Tuesday (but not guaranteed). Holidays are often tricky to trade, so sometimes the best strategy is to not trade at all (especially from Wednesday to Friday). Have a great Thanksgiving!

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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: www.realinvestmentadvice.com

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

Bullish or Bearish? Week of Nov. 12, 2018

Here are the most recent market indicators:

S&P 500 one-month trend = Pivot  (Mildly Bearish) The uptrend is still broken, at least temporarily, but that could change if the indexes continue to move higher. 

S&P 500 is below its 50- and 100-day moving averages= Bearish

RSI: (S&P 500) @51.24= Neutral 

Intraday Volatility: Moderate 

Comment: I made a big mistake last week and I hope you learn from it. I entered the market with a “bearish view,” because I “thought” the indexes were going to plunge. They fell for the first half hour on Monday morning, and after that the Dow went up by 900 points in three days! My first mistake was having a preconceived opinion. With that opinion, I started to short the rallies, which didn’t work, so I closed the position with losses. I tried it again on Tuesday, and again I was wrong, so I closed the position again with losses. Although my losses were minimal (because I sold my losers quickly), because of my “view,” I missed out on one of the greatest rallies of the year. I won’t be making that mistake again!

If you are a trader, and you find out a trade isn’t working, you never argue with the tape. You get out with losses and reevaluate. If you’re agile, you can switch sides (it’s hard to do because you must admit you were wrong). But not only do you never argue with the tape, but you never hold a losing position for very long, hoping you will be proved right. Only the market is right, even if it’s not fair or doesn’t make sense.

Last week the algos ran the market obscenely higher Monday to Wednesday on nothing but fumes. I “thought” the market would be volatile because of the election and the Fed, but it was hardly volatile at all. The strong rally didn’t make sense, but it happened. By Wednesday, the market had moved into extremely overbought territory, giving nervous investors a ray of hope from a miserable year. 

As mentioned, the algos ran the market above it’s 200-day moving averages in a stunning 900-point Dow rally. Unfortunately, the SPX is still below it’s 50-day and 100-day moving averages. For the rally to continue, it will have to rise above its 50-day and 100-day MA, which is now resistance. Based on the RSI and other clues, the market could go in either direction this week.

The rising interest rates should be watched as that could be a problem for the stock market moving forward. The FAANG stocks got creamed on Friday, another negative sign. And oil got massacred, which needs to be watched. Because of the Friday selloff, the market is not as overbought as it was on Wednesday. For the bulls, typically there is a Christmas rally near Thanksgiving and Christmas. There is no guarantee that will occur this year, but traditionally the market does move higher near the end of the year. In addition, any money manager who is behind (a lot are this year) will be panic buying to run up the percentages. Obviously, there will be a lot of conflicting forces as we count down to the end of the year.

Bottom line: Keep an open mind this week, a lesson I forgot to heed. Do not get locked into a “point of view.” 

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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: www.realinvestmentadvice.com

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

Bullish or Bearish? Week of Nov. 5, 2018

Here are the most recent market indicators:

S&P 500 one-month trend = Bearish  (The uptrend is broken. Caution is advised). 

S&P 500 is below its 50-day, 100-day, and 200-day moving averages = Bearish

RSI: (S&P 500) @43.64= Neutral 

Intraday Volatility: High 

Comment:  Last week, the bulls needed to bring the indexes above their 200-day moving averages, and they did, at least for a day. It was quite impressive how the Dow went up by 900 points in three days (Tues., Wed., Thurs.). It was an incredible rally but unfortunately, the indexes were unable to stay above their 200-day moving averages.

All week, there was conflicting news from many sources, including from the White House. As a result, there were wild intraday swings. Volatility is a two-edged sword. On one hand, it can bring great profits if you time the trade correctly and get out quickly. On the other hand, you can lose money if your timing is wrong. It’s not easy to trade in this environment, which is why trading small is recommended.

With the election, the post-election, and the Fed meeting this week, it should be another wild and volatile week. Expect a lot of intraday reversals. Day traders will be pleased, but investors are going to feel a lot of heartburn.

My bearish view: When I put all of the clues together, I am entering this week with a bearish view (i.e. short the rallies). In addition to the election and the Fed, I am also concerned by the Apple news. I believe that investors have been shaken but are still too hopeful and unaware of the risks. The charts of the FAANG stocks are weak, and all I hear from investors is “the FAANG stocks will come back.”

In addition, the indexes went up too abnormally high and too abnormally fast with help from the algos. Even with my bearish short-term view, and this is important, the market is always right. Therefore, if the market rises above its 200-day moving averages (perhaps the Fed will say something positive), and if the trend is up, I will switch sides.

Recession Watch: I was at a mall in Fort Lauderdale, and although the mall was crowded, I found out from several store owners that sales were the “worst in 10 years,” as one owner told me. An owner of a candy store told me if sales don’t improve this Christmas, he won’t renew his lease. These are the type of clues that the great investor Peter Lynch looked for, and it could be an early warning sign of problems ahead. Add in the rising interest rates and stories that housing and auto sales are rolling over and you have the makings of a recession. It’s too early to say for sure but keep your ears and eyes open for clues.

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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: www.realinvestmentadvice.com

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

Bullish or Bearish? Week of Oct. 29, 2018

Here are the most recent market indicators:

S&P 500 one-month trend = Bearish  (The uptrend is broken. Caution is advised). 

S&P 500 is below its 50-day, 100-day, and 200-day moving averages = Bearish

RSI: (S&P 500) @30.34 = Oversold (Rallies are possible)

Intraday Volatility: Moderate to High 

Comment:  As I warned last week, this could get ugly real fast and it did. Once the indexes fell below its 200-day moving averages last week, volatility increased along with selling. The technical indicators are awful with one exception. The RSI is oversold, so a strong short-lived rally is likely. Volatility will continue as the bulls and bears fight it out.

Right now, the market is in a correction. However, and this is important, it’s too early to say if this will turn into a bear market. Corrections typically last no more than a month, so it’s possible we’ll have that hoped-for Christmas rally. Unfortunately, the market has been severely damaged, so it will take some time for it to recover. The last two corrections bounced back fairly quickly, and it’s possible it will happen again.

Unfortunately, we could also be heading right into a bear market (20 percent or more decline that can last for a year). If we do, it will get even worse from here, with occasional one-day rallies that gives hope to bullish investors. No one can predict which scenario will play out, but you should be prepared for both.

When there are strong rallies, take the opportunity to sell losers and move to cash. If you are a trader, you will primarily be shorting rallies (with puts) rather than buying on the dip, but you can do both. Corrections and bear markets are difficult to maneuver, so it takes practice and experience. One thing for sure: If we do enter a bear market, it will test the patience of buy and hold indexers who will not sell (at first). And who can blame them? After the last bear market and two corrections, the market bounced back. Since people often rely on the past to predict the future, most investors will sit tight even if a bear market ravages their portfolio.

Perhaps this will be a typical correction and all be well by January. But if it’s not, make plans now so you are not forced to sell at the worst possible time. Shred the losers, evaluate your portfolio, and learn how to survive and thrive in bear markets. One thing I can say with confidence: The great bull market that started in 2009 appears to be faltering as we head into uncharted territory.

Bottom line: Watch this week to see if the bulls can win more than a day, or if any rallies reverse during the day. The bulls desperately need to win this week and bring the indexes back above its 200-day moving averages. We’re all waiting breathlessly to see if they succeed, or not. 

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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: www.realinvestmentadvice.com

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

Bullish or Bearish? Week of Oct. 22, 2018

Here are the most recent market indicators:

S&P 500 one-month trend = Pivot  (The trend is still broken. Caution is advised). 

S&P 500 is below its 50-day and 100-day moving averages = Bearish

S&P 500 is nearly even with its 200-day moving average = Neutral to Bearish

RSI: (S&P 500) @36.23 = Near oversold (a rally is possible) 

Intraday Volatility: Moderate to High 

Comment:  If you wanted excitement, the place to be was the stock market. After 10 years of relatively low volatility and an uptrend, the market has acted like it’s had a case of indigestion. If you’re an investor who has been used to a relatively calm uptrend for the last ten years, the increased volatility is a new and strange environment. Although the market has experienced short bouts of volatility in the past, volatility is lasting longer, and it’s possible it will be with us for a while until something breaks. 

While many traders are enjoying the volatility (if they are experienced), it’s not an easy environment to trade. For example, last week the SPX had major pullbacks and a huge rally but the SPX ended exactly where it started! Believe me, that is not a healthy sign. When you put it all together, the market has a very bearish tone. In fact, the stock market is in serious trouble right now, and few realize it.

Although it’s possible the market will get through the next few weeks unscathed, it’s unlikely. One strategy that worked last week was shorting the rallies. Nearly all of the intraday rallies failed.

Even with all this negativity, it’s important you do not enter the market with a negative bias. I have learned the hard way that you only look at the facts, ie. what the market is actually doing, and not make big bets in advance of the market direction. You can make a very good living by being a little late to the party (bull or bear). 

Right now, look closely at the 200-day moving average. For the bulls to keep control, they must defend the 200-day moving average, and they will try. But as soon as the 200-day is breached, and SPX or the DOW falls below it for more than a day or two, look out below. 

This week should be a Battle Royale between the bears and the bulls. If you are rusty or inexperienced with bear markets, now is the time to get educated. Start with Jesse Livermore’s books (i.e. Reminisces of a Stock Operator), and read one of my favorites, Jesse Livermore Boy Plunger by Tom Rubython, a biography about Livermore. I learned more from Rubython’s book than almost any other. 

Bottom line: Get out the popcorn as the market made a major pivot two weeks ago. It’s October, investors are nervous but hopeful, and the bears are licking their chops. This could get real ugly real fast so bring your “A” game.

 

 

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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: www.realinvestmentadvice.com

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

Bullish or Bearish? Week of Oct. 15, 2018

Here are the latest market indicators:

S&P 500 one-month trend = Pivot Point  (The uptrend has been temporarily broken. Caution is advised.)

S&P 500 is below its 50-day and 100-day moving averages = Bearish

RSI: (S&P 500) @29.52 = Oversold (rally is possible)

Intraday Volatility: Moderate to Heavy (anything is possible if volatility increases) 

Comment:  Last week I saw some important clues that pointed to a trend change. For example, I correctly identified what is called a “pivot point,” which I said could be a “potential trend change.” Little did I know that it would be that severe. In fact, the Wednesday afternoon plunge took nearly everyone by surprise, including me. (FYI, “pivot point” was coined by Jesse Livermore, and is worth studying). 

There were many clues that we were hitting a short-term top. For example, investors had been bragging how much money they have made in the market. (That’s how I predicted the bitcoin top almost to the day). I was also getting emails and text messages from investor friends bragging how the market “will never go down” or if it does, “it will bounce back quickly, because the market always comes back.” 

The S&P sliced through the 50- and 100-day like it was butter. Right now, it’s a point above its 200-day moving average. If SPX drops below and stays below its 200-day moving average, that would be extremely bearish. In the past, however, the market recovered from these pullbacks and went on to even higher levels. It remains to be seen if it can do that again. Unfortunately for the bulls, interest rates are rising, and that is a huge negative for the stock market. There are other issues as well, but interest rates take center stage for now. 

Moving forward, we need to see if the indexes recover from last week’s short-term disaster. At a minimum, the S&P 500 needs to retake its 100-day and 50-day moving averages, just like it did in February and July. Investors are hoping for the best, while objective market observers know the market could go in either direction. It is still too early to proclaim that the worst is over, even after Friday’s snapback rally. 

Bottom line: If the indexes fail to rise above its moving averages, or if they continue to fall, that would be a huge warning sign. The coming weeks are important as the indexes try to repair the damage from last week.

Note: Here is my latest column on MarketWatch, about how to get started trading options: https://on.mktw.net/2Nx6inI

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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: www.realinvestmentadvice.com

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