The Weekly Trader

MY TWO NEWEST BOOKS WERE RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – DOWNTREND:  SPX rallied and sold-off during the week, ending in a mild 53-point selloff from 3639 to 3583 (erasing the gains from last week). The SPX daily chart is as ugly as can be (below all three moving averages). Support is at the 200-WEEK moving average (more on this below). On Sunday night, futures are higher, but that could change in the morning.

Long-term trend (WEEKLY CHART) – DOWNTREND. The SPX 200-week moving average is support. Although SPX fell slightly below its 200-week MA on Friday, the odds are good it will rise above it on Monday (especially if the futures hold). If SPX drops well below its 200-week MA this week, then all bets are off – it could get even uglier.

MACD (WEEKLY) = DOWNTREND. The WEEKLY MACD reflects the awful trading environment, with MACD below its signal line and zero line.

RSI: (S&P 500) @38.04 (DAILY) OVERSOLD. This feels like deja-vu. Once again, RSI is oversold, so the odds are high there will be a rebound this week. Although RSI is oversold, it’s not at extreme levels yet (below 30). A rebound in the indexes is still quite possible.

Daily Intraday Volatility (VIX) = 32.02 ELEVATED: VIX remains at higher than normal levels, but not at extreme levels (which would reflect panic). VIX is telling us there is a heightened sense of nervousness, but it’s under control.

Comment:  If you are feeling as if the market is on a wild roller coaster ride, you are correct. There are these mind-blowing rallies followed by severe selloffs. This is the nature of bear markets, and unfortunately, no one knows when it will end.

The easy days of weeks and months of rallies are over for now. If there is a two-day rally, that is excellent. Most of the time, rallies are one-day wonders.

As mentioned earlier, SPX is still above its 200-week moving average, the only positive sign in a sea of red. Although not many are mentioning the word, “bear market,” we are in one, so trade and invest accordingly. (Not everyone agrees we are in a bear market. They want to see SPX fall below its 200-week MA first).

Yes, we could have a monster rally that brings SPX back above its three major moving averages, but until then, assume that the roller coaster ride is going to continue.

MY TWO NEWEST BOOKS WERE RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – FAILED RALLY:  As expected, last week was WILD. First. the market rallied by 6 percent in two days. Then it sold off (more on this in the comment section). SPX ended the week with a mild 54-point rally, rising from 3585 to 3639. Because the rally ultimately failed, the daily chart is still dreadful. Futures are lower on Sunday night, but that could change in the morning.

Long-term trend (WEEKLY CHART) – DOWNTREND. SPX spiked above its 200-week moving average early in the week, but then sold off later in the week. It is now slightly above its 200-week moving average. As mentioned last week, if SPX drops below its 200-week MA (a support level), it will not be pretty.

MACD (WEEKLY) = DOWNTREND. The WEEKLY MACD continues to fall, as MACD dropped below both the 9-day signal line and zero line. 

RSI: (S&P 500) @37.73 (DAILY) OVERSOLD. RSI flashed a buy signal when it dropped well below 30 last week. As if on cue, the indexes rallies strongly, bringing RSI back to even. After last Friday’s selloff, however, RSI is slightly oversold again. If it drops to 30 or below, it could be a short-term buying opportunity.

Daily Intraday Volatility (VIX) = 31.36 ELEVATED: All of this volatility is playing havoc with VIX. It plunged early in the week, then rose later in the week as nervous option traders added more puts to their option positions.

Comment:  Last week, I asked: “How long will the rally last?” As it turned out, two days. Once again, RSI was so oversold (well below 30) that a monster rally was inevitable, and SPX did not disappoint. As mentioned earlier, SPX rose by 6 percent in two days, a spectacular achievement. Then, the indexes sold off (financial experts are blaming it on a strong employment report, which in the wacky world of Wall Street, is a negative).

It’s so obvious we are in a bear market. Every strong rally, even a monster rally, runs out of steam. This is how it’s going to be for a while, maybe for months: Rallies followed by selloffs.

Even more dangerous, one day we may have a sustained rally that brings the indexes back above its moving averages. Just when everyone proclaims the bear market is over, the indexes plunge even harder. This is a real possibility.

Since every bear market is different, it’s wise to read about them so you know what to expert (I have a MarketWatch column coming out next week that describes the 9 stages of a bear market. Unfortunately, we are only in the 4th stage.)

If you want to know what to do, although I can’t give specific advice, I can say that the following are good ideas:

  1. Dollar cost average into index funds if a long-term investor.
  2. Buy CDs and T-bills, which are paying near 4 percent, but check to confirm the rate.
  3. Raise cash for protection, but also be ready to buy when the bear market ends (although it’s nearly impossible to time the bottom).

MY TWO NEWEST BOOKS WERE RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – MAJOR SELLOFF. The indexes plunged again last week, with SPX dropping from 3693 to 3585, a painful 108-point pullback. The market had one good rally during the week, but reversed the next day. The daily chart is downright ugly, falling well below its 50-, 100-, and 200-day moving averages. Futures are higher in the morning, which should translate to a strong opening. The question is: how long will it last?

Long-term trend (WEEKLY CHART) – DOWNTREND. SPX is resting on its 200-week moving average, and if support doesn’t hold, it will get a lot uglier. My money is on support holding, followed by a rally (this is not a prediction, only an educated guess).

MACD (WEEKLY) = DOWNTURN. The WEEKLY MACD continues to display trouble, as MACD breached both the 9-day signal line and zero line. 

RSI: (S&P 500) @28.47 (DAILY) EXTREMELY OVERSOLD. For the second week in a row, RSI fell below 30, which reflects extreme oversold conditions. A monster rally is likely but RSI does not tell you when. Hold on to your seatbelts as this is an important week. Put another way, RSI is warning of a reversal to the upside.

Daily Intraday Volatility (VIX) = 31.62 ELEVATED: The VIX is telling us that fear has finally creeped into the marketplace, as option buyers are protecting their portfolios with puts. At 30 and above, option traders are nervous. (At 40 or above, it reflects extreme fear that results in a tradeable bottom.)

Comment: Many investors are dealing with the selloff and bear market by refusing to look at the market or their statements. That is one way of dealing with the pain (by pretending it’s not there). Another way is to use indicators and clues to identify a short-term bottom.

Based on RSI, a monster rally should occur shortly. Unfortunately, the rally will probably not last for long. As you have seen in the last few months, every rally has been followed by a selloff (this occurs when many fund managers dump stock positions to salvage gains or limit losses).

By now, I’m sure you realize this is a bear market, and they are tricky animals. Many investors believe the worst is over, especially if there is a short-term rally. Unfortunately, if this follows a traditional bear market, the indexes have much further to fall.

Hopefully, you are diversified and also looking at fixed income products such as CD’s paying 4 percent or T-bills paying 3.85 percent. These products are not perfect but they are ideal in a high-risk trading and investing environment.

Bottom line: We are in a bear market, and they are not fun. They also last a relatively long time, so keep your seatbelts fastened.

MY TWO NEWEST BOOKS WERE RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) SELLOFF. The indexes plunged again last week, with SPX dropping from 3873 to 3693 during the week, another mind-boggling 180-point rout. There is a little good news mixed in with the sea of red. The daily chart is downright ugly, one of the worst in recent history. On Sunday night, futures are flat to slightly lower as the market tries to catch its breath. Futures could change direction in the morning, and they probably will.

Long-term trend (WEEKLY CHART) – DOWNTREND. Little did I know that SPX would plunge to its 200-week moving average in one week! The odds are good the indexes will hold at 3585. If not, then it will get uglier than anyone can imagine. My money is on support holding.

MACD (WEEKLY) = DOWNTURN. The WEEKLY MACD is reflecting trouble, as MACD breached both the 9-day signal line and zero line.

RSI: (S&P 500) @28.90 (DAILY) EXTREMELY OVERSOLD. The odds are very good there is going to be a monster rally in the near future (based on RSI). I haven’t seen RSI numbers this low in a long, long time. As always, you can’t use RSI to time the market but a snapback rally is coming, so be prepared. Yes, the indexes could keep falling a bit longer but one of these days the shorts are going to get smashed.

Daily Intraday Volatility (VIX) = 29.92 HIGHER: The VIX has been creeping up as the market has been falling. Option traders are finally waking up to the fact that it’s a bear market. When VIX is at 30 and higher, there is fear. At 40 and above, it’s panic. Note: VIX is a contrarian indicator but still should not be used to time the market, only to gauge its mood.

Comment: I don’t have to tell you how ugly the chart looks. Many traders are buying the dip on the way down, a dangerous strategy that should work eventually, as long as you trade or invest small.

Fed Chair Powell warned he was going to keep raising rates, and he kept his word. Many blame him for “juicing” the market by keeping interest rates too low for too long. Now they are blaming him for taking away “the punch bowl” too aggressively, causing pain in stocks, housing, and cryptocurrencies. It’s not a pretty picture.

As I wrote earlier, a snapback rally is coming, although no one knows when. We are in a bear market although the financial media doesn’t mention it much. (Technically,, we’re “almost” in a bear market.) Perhaps everyone is waiting for a bell to ring!

In the past, I’ve given advice about what to do — from staying on the sidelines to dollar cost averaging. Traders may try to buy the dip but this is a dangerous strategy. Inexperienced traders should trade small while investors should DCA into index funds. Eventually, bear markets end, but only after maximum pain has been inflicted.

If we do get a monster rally soon, the odds are good the rally won’t last long, so be prepared for a volatile market. The chart looks about as ugly as can be but once again, this is the time to think about buying rather than panic selling.

Good luck out there and be sure to follow your rules. Trading should be lighter on Monday due to the Jewish holiday. The Fed is running the show and Powell seems determined to raise rates ONE MORE TIME. (Eventually, Powell may get his wish and slow inflation, but it’s likely he’ll take stocks and housing down with him.)

MY TWO NEWEST BOOKS WERE RELEASED: Here is the link to Understanding Stocks (third edition): https://amzn.to/3wO761F (Amazon) or https://bit.ly/3udwAUf (Barnes and Noble). Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) SELLOFF. The indexes took a negative turn last week, especially SPX, which fell from 4067 to 3873, a disastrous 193-point rout. SPX is once again below its major moving averages, including a break below the important 4,000 support level. In two weeks, we went from hugely overbought to oversold (according to RSI). In a nutshell: it’s ugly. Futures are LOWER on Monday morning.

Long-term trend (WEEKLY CHART) – DOWNTREND. SPX is below its 50- and 100-week but still above its 200-week, the only ray of hope in a world of pain. The 200-week is at 3,579, and if that is violated sometime in the future, it will get even uglier. We have a ways to go before we hit those levels.

MACD (WEEKLY) = DOWNTURN. The WEEKLY MACD took a turn for the worse, as even the 9-day signal line reversed direction.

RSI: (S&P 500) @37.72 (DAILY) OVERSOLD. If you want a ray of hope, it will be found in RSI, which has been remarkably accurate in predicting overbought and oversold conditions (especially oversold). As RSI heads towards 30, be prepared for another snapback rally. Unfortunately, the snapback rallies haven’t lasted long, one of the reasons I am certain we are in a bear market.

Daily Intraday Volatility (VIX) = 26.30 HIGHER: The VIX rally reflects the increased purchases of put options, which means a touch of fear entered the hearts and minds of option traders.

Comment: Last week was an ugly one, and it was not a surprise. As you recall from last week’s comment, I recommended sitting and waiting. Those who bet against the market (or against any old stock) probably did well. This is no place for the inexperienced, and if you are, then trade cautiously.

As I wrote above, I am certain we are in a bear market, and it will take a long while to play out (bear markets typically last 14 to 18 months). I can make an educated guess that if this is a typical bear market, SPX and the other indexes will drop another 20 to 22 percent after the smoke has cleared. There will be many short-term rallies along the way, fooling those who know little about bear markets. Suggestion: Read my book, How to Profit in the Stock Market, to learn more about bear markets).

The Fed kept interest rates ridiculously low for years, and now they are warning they will continue to raise interest rates. According to a number of market professionals, if the Fed keeps raising rates as promised, they will crash the stock and housing market. I personally have no idea if this is true but I do know the higher interest rates will inflict more pain on investors and home buyers.

These are uncertain times so expect more trouble before it’s over. The old rules still apply, and that means trading or investing small, take the time to study bear markets, use dollar cost averaging tactics, and if you are losing money trading, stay on the sidelines. This is not an easy trading environment!

The Fed is meeting this week so it’s guaranteed to get volatile before and after the meeting. If the Fed makes an aggressive move with interest rates, it will get extremely volatile (and unpredictable depending on what Powell says).