Bullish or Bearish? Week of January 11, 2021

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

One-month trend = Bullish. The indexes continued to rise last week, closing at 3824 on the SPX, (higher by 68 points from a week ago). On Sunday night, the futures are drifting lower and lower, but that could reverse in the morning, or get much worse.

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA. 

RSI: (S&P 500) @ 67.28 (Daily) = Overbought. RSI is in the danger zone at 70.27. This is a warning sign.

MACD (Weekly) = Bullish. MACD is above its zero line and above its 9-day Signal Line. Note: I switched from studying the daily to the weekly MACD.

Daily Intraday Volatility (VIX): 21.56 = VIX is still in the basement, and telling us there is no fear. 

Comment: SPX is on a roll, and rose another 68 SPX points against all odds. In fact, the indexes moved up so high and fast that even some bullish professionals are warning of a severe pullback. They are probably looking at indicators that are signally an extremely overbought market.

RSI, my personal favorite, hit 70 on Friday. The indexes have pulled back on Sunday night (in the futures market), which is not surprising considering all of the bad news swirling around.

Speaking of overbought, Bitcoin rose to $40,000 per coin, which attracted the attention of thousands of investors who are suddenly interested in bitcoin (again). It’s interesting that investors ignore stocks and other products such as bitcoin when it’s at low prices. But when it spikes higher, suddenly everyone is interested. A lesson I learned a long time ago: If a stock or other product such as bitcoin moves up too high and too fast, the risk of a reversal is extremely high.

With all of the negative political, economic, and virus news swirling around, it’s astounding the stock market is at these extreme levels. Do not be shocked if there is a sudden and violent plunge in the near future, maybe even this week or next. We haven’t had any pullbacks since last March, so we’re definitely due for a nasty surprise.

Bottom line: The market is overbought and dangerous according to the indicators. Be careful out there.

The following is an excellent piece by Lance Roberts, on how the market is overbought and over-extended: https://bit.ly/2Li9Q1O

_______________________________________________________

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

Bullish or Bearish? Week of January 4, 2021

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

One-month trend = Bullish. Last week, SPX drifted through the four-day New Year’s holiday on low volume and momentum. The indexes drifted slightly higher during the week. SPX closed at 3756 on Thursday night (higher by 50 points from a week before). On Sunday night, the futures are flat, but that could change in the morning. 

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA. 

RSI: (S&P 500) @ 67.28 (Daily) = Overbought. RSI is getting close to the danger zone, i.e. 70 RSI.

MACD = Neutral. MACD is above its zero line but is even with its 9-day Signal Line

Daily Intraday Volatility (VIX): 22.75 = VIX is still saying there is no fear. 

Comment: The bulls are dreaming of a Santa Claus rally, which includes the first week of January. In addition, the so-called January effect suggests that how the market performs in early January determines the rest of the year. Sometimes the January effect works, sometimes not.

Nevertheless, the market is overbought, the virus is exploding, and the economy is mixed. It’s amazing to many that the stock market has done this well, all things considered.

However, if there is anything I learned about the stock market, it’s that what most people “think” will happen doesn’t usually happen. When it comes to the stock market, forget common sense, as the market follows its own path. That is why I follow the market rather trying to outwit it.

The market is overbought according to most technical indicators, but that won’t prevent it from becoming more overbought,. However, once RSI rises about 70 on SPX, be on guard. Trade or invest with caution if and when RSI rises above 70.

Whether you are trading or investing, be sure you are properly diversified in case the market goes in the “wrong” direction. Always prepare for worst case scenarios and look for opportunities to buy winning stocks at competitive prices. Right now, unfortunately, most of the most popular stocks are at or near all time highs.

Bottom line: Stand by and see which side wins. It could be a tricky road over the next two weeks.

Bitcoin news: If you haven’t looked, bitcoin, which rose to $20,000 a coin a few years ago before plunging to $6,000, has made a remarkable recovery recently. If you haven’t looked recently, it spiked from $20,000 to $33,000 per coin. It either means that bitcoin is ridiculously overbought, or a solid long-term investment. I have no idea which, but similar to Tesla, short sellers got smashed.

_______________________________________________________

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

Bullish or Bearish? Week of December 28, 2020

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

One-month trend = Flat to Bullish. Last week, the SPX drifted through the four-day holiday week on low volume and momentum. Neither the bulls or bears won decisively last week. SPX closed at 3703 on Friday night. On Sunday, the futures are relatively flat to slightly higher, but that could change in the morning. It’s another four-day week.

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA. 

RSI: (S&P 500) @ 61.28 (Daily) = Neutral to slightly overbought. RSI is in the neutral zone as we start the shortened week. 

MACD = Neutral. MACD is above its zero line but is slightly below its 9-day Signal Line

Daily Intraday Volatility (VIX): 21.53 = VIX is still saying there is no fear. 

Comment: Last week was not very exciting as neither side made it to the Winner’s Circle. In fact, last week is a duplicate of two weeks ago. We have another four-day week but this week, news events could impact the market.

Breaking News: The president tweeted that he plans to sign the Covid Relief Bill, and he just did. It’s hard to predict how the market will react, but it leans towards bullish.

The overall market is still overbought, there is still a lot of anxiety in the country, and the virus appears out of control. And yet, we are near our all time highs.

Only you can decide what to do but playing it safe is not an unreasonable decision. Since the market is an auction, I’d rather wait and buy at more competitive prices than is being offered now. Obviously, astute investors and traders can find stocks with reasonable valuations, but you have to do your homework (i.e. search for good candidates).

Bottom line: Wait and see what happens this week. We could go in either direction. Have a great holiday and New Year! And please stay safe.

Note: I don’t usually promote myself but Forbes Magazine gave two of my books, Understanding Options 2E, and Understanding Stocks 2E, an excellent review. The link is here (I’m #5 on the list): https://bit.ly/34PCmi5

Lance Roberts (realinvestmentadvice.com) wrote another excellent piece on how the market may rally in the first week of January but then watch out below: https://bit.ly/3pthMfb

Bullish or Bearish? Week of December 21, 2020

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

One-month trend = Flat to Bullish. SPX drifted through the week, ending almost where it started. Neither the bulls or bears won decisively last week. SPX closed at 3709 on Friday night. On Sunday, the futures are relatively flat.

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA. 

RSI: (S&P 500) @ 63.53 (Daily) = Neutral to slightly overbought. RSI is in the neutral zone as we start the shortened week.

MACD = Neutral. MACD is above its zero line but is slightly below its 9-day Signal Line

Daily Intraday Volatility (VIX): 21.57 = VIX is saying there is no fear.

Comment: It’s a four-day week because of the Christmas holiday. Often, there is a “Santa Claus rally” before the holidays, and with the stimulus, along with the vaccine, there is reason to be optimistic. In fact, a lot of investors are extremely optimistic.

I don’t want to sound like a party pooper but as I said last week, when nearly “everyone” is bullish, I get cautious. And judging by my analysis of both professionals and retail investors, it appears as if the majority are extremely bullish. The low VIX confirms the lack of fear.

No one can predict with certainty what is going to happen this week or next, but we can read the clues. After studying the indicators, however, neither side is dominant yet. We could go in either direction.

The market is only sightly overbought but the VIX is on the low side. Although there is reason to be bullish, there is still a lot of financial uncertainty and pain, along with the deadly virus that seems to get worse each week.

These two competing forces have given us the market you see before you: A battle between the bulls and bears. So far, the bulls have a slight edge as every selloff is met with buying. 4000 on the S&P 500 is the goal of the bulls by the end of the year.

Bottom line: More time is needed before making a huge commitment to either side. Keep in mind that the majority of traders and investors are bullish. They could be right, but I’d still be on guard.

The following is an excellent piece by Lance Roberts (realinvestmentadvice.com) on the overly bullish environment, which confirms what I am also seeing: https://bit.ly/3peRKwf

Bullish or Bearish? Week of December 14, 2020

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

One-month trend = Flat to Bullish. As expected, (due to overbought signals from RSI), SPX drifted lower last week, closing at 3633 on Friday. Now: Futures are substantially higher on Sunday night, but as always, wait until the morning for confirmation. 

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA. 

RSI: (S&P 500) @ 60.22 (Daily) = Neutral to slightly overbought. RSI warned us last week that the market was getting “too big for its britches” (i.e. overbought), and sure enough, RSI dropped from near 70 to 60. Now you know that RSI often gives reliable warning signals as it creeps closer to 70 (visa versa on 30).

MACD = Neutral. MACD is above its zero line but crossed below its 9-day Signal LineMACD reversed direction with the market and signaled there could be trouble, and there was.

Daily Intraday Volatility (VIX): 23.31 = VIX is still telling me that investors have little or no fear. 

Comment: Last week, the market got too overbought, as reflected in the RSI readings (near 70). Sure enough, the market was unable to move higher, which was not a surprise, and then fell almost all week. Volume and momentum were absent.

On Sunday night (as I’m writing this), the positive vaccine news and a Fed meeting are leading to a positive futures market. RSI has moved to neutral (a little overbought at 60) but VIX is signaling extreme complacency. With the holidays approaching, and investors dreaming of a Christmas rally, caution is still advised.

It always makes me cautious when “everyone” is on the same side. It’s true that the market often rallies during Fed meetings, and perhaps the optimism over the vaccine will take the market into the stratosphere. That is quite possible.

On the other hand, I have seen this scenario before. In 1999, the market was going to the moon (thanks to bullishness over dot.com), and with the Fed’s help over the Y2k fears, the market went even higher in January 2000. The market seemed unstoppable. By March, however, the party ended as the market began a long descent into the abyss. It was not a pretty picture as many investors and traders lost everything.

I’m not saying this will end the same way. What I do know is that all bull markets, and bubbles, end. No one can say when, or what the catalyst will be, but one day this bull market ends. Right now, the biggest worry for me is the low VIX and that so few traders and investors think anything is wrong. Every decade or so the market teaches these people painful lessons.

I’m not saying to sell everything and move to cash, but it wouldn’t be a bad idea to evaluate how much risk you are taking with stocks, and to reduce risk if necessary. It’s a decision only you can make.

Meanwhile, with the vaccine on its way, the Fed meeting, and a recent pullback, the market appears ready to rock and roll. Let’s see how high it can go, and most importantly, if any rallies fail. As I’ve said in the past, watch the rallies for clues. A failed rally would be a warning signal.

Bullish or Bearish? Week of December 7, 2020

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

One-month trend = Bullish. SPX drifted higher during the week. Volume and momentum was on the light side all week. Futures are flat to lower on Sunday night, but once again, wait until the morning for confirmation. 

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA. 

RSI: (S&P 500) @ 67.96 (Daily) = Overbought. As SPX creeps higher, so does RSI. It’s near the 70 RSI overbought level, so be on guard. I would not be surprised to see a severe reversal based on RSI alone, but no one can predict when.

MACD = Bullish. MACD is above its zero line and above its 9-day Signal Line. MACD is signally that the uptrend will continue. Look for any signs of a reversal.  

Daily Intraday Volatility (VIX): 20.79 = How low can we go? VIX tells me that bullish investors have little or no fear.

Comment: The overbought market has become more overbought. Throw the fundamentals out the window because no one seems to cares. Just like in 1999, and 2008, all that matters is that the market is going higher.

Wise traders, however, know that extreme overbought markets can reverse on a dime, and at anytime. I can’t predict when that will happen, but I am certain it will happen. There is a point when there just aren’t enough buyers to keep lifting the market higher.

Trying to time a reversal is difficult for most traders. That is why it’s a good idea to trade less often and with smaller positions as the market gets more overbought. If the RSI of SPX rises above 70, that is a flashing warning signal.

Most investors are waiting for a Christmas rally, fueled by the positive vaccine news. And yet, the jobs number was disappointing, and there are other signs of economic problems.

Bottom line: It’s unknown which direction the market will go this week, but the overbought signals should not be ignored. Markets can reverse without warning before investors have a chance to react. Watch the rallies closely for clues of a struggle to move higher.

Here is the latest from Lance Roberts (realinvestmentadvice.com), who notes that investors are ignoring the rising risks: https://bit.ly/3osdAvI

Sven Henrich (Northman Trader) observes how momentum is weakening while the market moves ever higher: https://bit.ly/39K4Vkh

Bullish or Bearish? Week of November 30, 2020

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

One-month trend = Neutral. SPX moved higher early in the week and then flat-lined before and after Thanksgiving. Volume was thin all week. Perhaps participants will return to the market this week. Futures are slightly lower on Sunday night, but wait until the morning for confirmation.

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA. 

RSI: (S&P 500) @ 63.72 (Daily) = Overbought. As SPX creeps higher, so does RSI. It’s not extreme yet but it’s getting closer. RSI has given some remarkably accurate readings in the last few months, so pay attention if it spikes during the week.

MACD = Bullish. MACD is above its zero line and above its 9-day Signal Line. MACD will give an early signal of a faltering market. It hasn’t given that signal…..yet.  

Daily Intraday Volatility (VIX): 20.84 = Very Low. How low can we go? VIX tells me that bullish investors have little or no fear, and are high on hopium.

Comment: SPX touched all time highs last week before falling back and then moving sideways. As the virus explodes higher (although half the country thinks the dangers are overblown), as the economy gets shredded, as more people lose jobs and benefits, we are pinning our hopes on the vaccines. If the vaccines work as advertised, that could be a big time game changer. Let’s hope it’s as good as advertised.

Meanwhile, with the market near all time highs, fear has evaporated, and optimism is in the air. The bulls got their wish when Dow 30,000 was hit, before falling back. Investors might get their wish a second time. This is really something: an all-time high of Dow 30,000 during the second worst pandemic in world history. (Powell better not raise interest rates or there will be dire consequences.)

Meanwhile, the thin volume and wait and see actions by the pros have me concerned. There isn’t mass selling, but there isn’t mass buying either. It feels like a game of chicken, one that I’m not not willing to play. A Christmas rally is always possible, especially if the vaccine is successful.

Some pros are recommending gold (see below), which is not a bad idea in these uncertain times. We’re in uncharted territory, one that I can’t compare to any other period in U.S history, except 1918.

Bottom line: Be careful out there as anything is possible. Investors are shockingly bullish (according to the VIX), and hope is on the way with the vaccine. Unfortunately, I just can’t shake the feeling that an unexpected nasty surprise is waiting for the bulls. Since I don’t trade on feelings, I’m sitting this one out for now.

Here is the latest from Lance Roberts (realinvestmentadvice.com), who wisely warns that risks are increasing: https://bit.ly/36kc4p9

Here is a piece from Sven Henrich (Northman Trader), who says it’s time to buy gold: https://bit.ly/39rg7Cc

Bullish or Bearish? Week of November 23, 2020

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

One-month trend = Neutral. SPX started off bullish early the first day but ended the week at the lows. Even the announcement of a vaccine couldn’t prop up the market for longer than a day. SPX closed at 3557 at Friday’s close, lower than a week ago. Futures are slightly higher on Sunday night. 

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA. 

RSI: (S&P 500) @ 57.08 (Daily) = Slightly overbought. RSI fell from extremely overbought to slightly overbought.

MACD = Bullish. MACD is above its zero line and above its 9-day Signal Line. MACD will give an early signal of a faltering market. 

Daily Intraday Volatility (VIX): 23.70 = Low. What me, worry? 

Comment: Last week, the indicators warned that the indexes were overbought, and sure enough, it was a rough week for the bulls. The rallies failed, and yet, there is little fear. 

Once again, pay attention to the rallies for clues. If the rallies fail again this week, it will not be pleasant for the bulls. With the pandemic spreading and the economy faltering, I’m amazed the market is still near its all time highs. The Fed is keeping interest rates low, and the algos are working overtime to keep the market stabilized. 

I would not be surprised to see a major pullback or plunge in the next few months. I don’t trade off of predictions, but I do prepare for any scenario. Trend trading has been difficult for quite a while. Scalpers and day traders have probably found more opportunities, but it’s not easy. Indexers are just holding and hoping for the best. 

At the moment, it’s impossible to predict market direction. My gut tells me the market is vulnerable (but I don’t trade off of my gut, my feelings, or predictions). Since the market is unpredictable at this time, I am personally on the sidelines, waiting for better setups. Perhaps others have found better opportunities, and if so, you should be commended. This is not an easy trading environment. 

Bottom line: Unpredictable market, unpredictable trading setups, and unpredictable world.

Here is the latest from Lance Roberts, who wisely took profits last week: https://bit.ly/35ZqqeJ

Bullish or Bearish? Week of November 16, 2020

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

One-month trend = Bullish. SPX started off strong last week, but then plunged the next day, taking quite a few stocks with it. SPX drifted the rest of the week but is still near all-time highs. However, I see a triple top. The futures are higher on Sunday night, but that could change in the morning. SPX was at 3585 on Friday’s close.

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA. 

RSI: (S&P 500) @ 63.57 (Daily) = Overbought. RSI is creeping higher, but not at extreme levels (yet).

MACD = Bullish. MACD is above its zero line and also above its 9-day Signal Line

Daily Intraday Volatility (VIX): 23.10 = Low. VIX is well below its 200-day moving average, reflecting a lack of fear (unless you are shorting indexes). 

Comment: The market broke higher last week before pulling back from overbought levels. A triple top has developed, but it does not mean the market will plunge anytime soon. Possible, but impossible to predict.

The market is still in an uptrend while the virus rages out of control, and the economy suffers. No one can say when reality returns to the market (it’s been a long time), but as I’ve repeatedly said, trade cautiously.

This week, watch the rallies closely. If the rallies have “legs,” and continue to move higher, that is bullish. However, if the rallies reverse direction or fail to make new highs, that would be bearish. In particular, see if the indexes can break through resistance.

Anyone holding indexes long should be pleased. Those who own individual stocks have had a rougher ride in the last few weeks. It’s an unpredictable environment, especially if you own individual stocks.

Bottom line: Let’s see if the indexes can break through resistance and make new highs. If not, it could be dangerous for the bulls.

__________________________________________________________

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.comEdit

Bullish or Bearish? Week of November 9, 2020

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

One-month trend = Bullish. SPX rallied much higher last week, rising above all moving averages and retesting all time highs. SPX is spiking higher on Sunday night, wiping out traders who are heavily shorting the indexes. SPX is at 3509 on Sunday night, but the futures market is pointing to a 50 point rally at the open. 

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 bounced back above its 50- and 100-day MA. 

RSI: (S&P 500) @ 60.03 (Daily) = Slightly Overbought. RSI went from oversold to overbought in one week. 

MACD = Bearish. MACD is at its zero line but pointing higher. It is also above its 9-day Signal Line

Daily Intraday Volatility (VIX): 24.86 = Lower. VIX plunged below its 200-day moving average, reflecting a lack of fear (unless you are shorting). 

Comment: As I repeatedly warned last week, this is a dangerous, unpredictable market. If you’re on the wrong side, you can get shredded. It was impossible to predict market direction last week. As it turned out, the market rallied all last week, and is expected to rally strongly on Monday at the open. 

I wish I could proclaim the bull market is back but the indexes have moved up too high and too fast, making it a very dangerous market. A reversal can occur at anytime, so trade at your own risk. Trade small if you participate. 

Bottom line: The market is going to rally strongly at the Monday morning open, with strong volume. Don’t dare short this market at first, although shorting opportunities will appear in the near future. In my opinion, it’s dangerous on both sides, so be careful if you are trading. 

__________________________________________________________

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.comEdit