Market Indicators (Week of June 17)

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 (6/12/2013)

33.0% bullish. 34.6% bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.


Investor’s Intelligence (6/12/2013)

43.8% bullish. 22.9% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.


CBOE Put/Call Ratio: .73

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: 17.14

Sell signal: Lower than 12.

Buy signal: Over 40.


Moving Averages (daily): S&P 500 above its 100-day and 200-day MA, and slightly above its 40-day and 50-day. S&P slightly below its 20-day MA.

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

Buy signal: Index crosses over MA.


MACD: MACD is still above the zero line but is firmly below the red 9-day signal line and pointing down. (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: Signals are mixed. Sentiment indicators reflect mixed opinions from retail investors and financial journalists (retail investors less bullish). S&P sitting on top of its 40-day and 50-day moving average, but it did drop below its 20-day MA, a short-term sell signal. MACD is flashing an early warning signal but it’s too early to know if it’s significant. Bottom line: Signals are mixed.

Opinion: If you’re a short-term trader, step right up, this will be your kind of week. There will be market moving news from the Fed on Wednesday (at 2:00 p.m. ET), and the odds are good that traders will like something (anything) Ben Bernanke has to say, at least at first. After all, the bull market must continue. Traders, look for reversals: there should be a few.

No one can predict which way the market will go except that it will go in both directions. If I were going to play the odds and probabilities, I’d say we’ll have a short-term rally, that is, until reality hits, and it reverses (or vice versa).

Here’s the bigger picture about the current market: 1. We could be having a short-term breather before the market continues on its bullish way. 2. Perhaps the bulls are trying to fool you into thinking everything is wonderful when in reality the market is ready to plunge.

There is a third choice, which what is what the indicators are telling us: The market is at a crossroads, and it’s very risky right now. Traders should love this week as the indecision and volatility should continue. Looking at the indicators, the S&P is sitting on top of its 50-day moving average. If it drops firmly below, it’s not going to be pretty. If it can stay firmly above (like it has three times this year), then the bull market will continue a bit longer.

My opinion, (which is as meaningless as everyone else’ opinions), is that the bull market is getting tired. Eventually, all of the problems around the world will negatively affect this market (but I will let the indicators be my guide). So far, we’ve been relatively immune to the world’s problems. Since we’re still the best place to invest right now (compared to everyone else), it’s no wonder this market is so resilient. But, be cautious as this market can turn on a dime.

Like I said last week, having cash right now isn’t such a bad place to be while the market figures out which way it is going to go. If you’re a trader, have fun. If you’re a long-term investor, sit tight and try to enjoy the show.

Bottom Line: Stock market is still indecisive so remain cautious. The winner of the battle between the bulls and bears will be known eventually (hopefully).

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

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