Market Indicators (week of July 8)

Each weekend, I will list signals from some of the most useful market indicators.*

A full list of the major indicators with signals can be found in my book, All About Market Indicators(McGraw-Hill).) I’m also the author of the best-selling Understanding Options (McGraw-Hill), Understanding Stocks (McGraw-Hill), and Start Day Trading Now (Adams Media).


AAII survey (7/3/2013)

42.0% bullish. 23.8% bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.


Investor’s Intelligence (7/3/2013)

43.8% bullish. 20.8% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.


CBOE Put/Call Ratio: .60

Sell Signal: Lower than .75 is a sell (more call options are being bought). Less than .50 is a screaming sell.

Buy signal: Higher than 1.0 is a buy (more put options are being bought)


VIX: 14.89

Sell signal: Lower than 12.

Buy signal: Over 40.


Moving Averages (daily): S&P 500 above its 200-day MA, above its 100-day, and slightly above its 50-day MA.

Sell signal: Index crosses below 50-, 100-, or 200-day MA.

Buy signal: Index crosses over MA.


MACD: MACD is on the zero line and firmly below the red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Sell signal: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Buy Signal: MACD line crosses above zero line. MACD line crosses above 9-day signal line.


Analysis: The S&P rose slightly above its 50-day moving average, but is firmly above the 100-day moving average (in fact, the 100-day acted as support). Sentiment readings are increasingly bullish, but not extreme. It was a good week for the bulls, but we’re still at a crossroads. The sentiment is bullish but the technical indicators, although improved, are still not giving an “all clear.” For that to happen, it will have to be another good week for the bulls, which is what the crowd is expecting to happen.

Opinion: In only a week, it seems as if the technical and fundamental analysts agree that the market is going up. Retail investors and financial investors are bullish again, the S&P crawled over its 50-day moving average, and the Dow is above 15,000. Economic indicators are positive, jobs are improving, and it seems like happy days are here again. People a lot smarter than me says we’re going a lot higher. Forgive me for being a party pooper because I’m still cautious.

The biggest party pooper is emerging markets, which is still in a bear market (over the weekend I heard one commentator recommend buying EM because it is so cheap. In my opinion, buying EM (or gold) on its way down is a sure way of losing all your money.) Bonds are also getting hurt and this could be the beginning. It seems that many investors didn’t realize you could actually lose money buying bonds. Surprise! When interest rate go up, and they are going up, bond prices go down, and some bonds go down faster than others.

Why buy anything that is falling? No one knows how low gold, bonds, or emerging markets can go. I’d rather buy gold (and anything else) on the way up, not on the way down. Trying to time the bottom is for gamblers only.

That brings us to the U.S market. When I look at the indicators, the market isn’t out of the woods yet. It’s struggling to stay above its 50-day moving average. I also have to wonder that if emerging markets and bonds continue to plunge, won’t that affect stocks? The bullish case is that everyone will run to our stock market because it’s the safest place to be. The bearish case is that our market cannot escape the turmoil in other countries, or in bonds.

So what is a long term trader supposed to do? As for me, I am watching to see if the S&P can decisively rise above its moving averages, and not sell off at the end of the day. Therefore, I’m taking a wait and see attitude on the US market. Perhaps the pros are right and the market is on its way upward and skyward, ignoring the world’s problems. The market could be consolidating for a few weeks before it heads higher. Or, this could be a bull trap.

Truthfully, I do not know. Perhaps this week will give us clues. If this is a continuation of the bull market, then the Dow will be well above 15,000 by the end of the week (or month). If this is the beginning of a correction or pullback, the market will continue to struggle, and be volatile.

The indicators will eventually declare a winner. For now, it’s a tie. The bull was knocked off its pedestal a few weeks ago, and it came back strong on low volume. Betting against emerging markets with an inverse ETF such as EUM has worked in the past, although there are no guarantees it will work in the future. Compare the chart of EUM (inverse emerging markets) with EEM (emerging markets).

Bottom line: It will be a fascinating week. The bulls want to believe the U.S. market is ready to take off, but it’s hard to ignore all of the looming problems in the world. I know this for sure: Anything is possible so be prepared. Once again, traders should enjoy the volatility while investors should remain cautious.


* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

I will notify you of my posts via twitter@michaelsincere

Understanding OptionsUnderstanding StocksStart Day Trading NowAll About Market Indicators