The Weekly Trader

WHAT THE INDICATORS ARE TELLING US 

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

One-week trend = Uptrend. The bulls squeaked out another win last week. SPX rose from 4436 to 4468, a 32-point advance. Futures are LOWER on Sunday night as the indexes flirt with all-time highs. 

RSI: (S&P 500) @72.36 (WEEKLY) = Extremely Overbought. I have not seen RSI this high since right before the March 2020 Covid crash. Does this mean the market is going to crash again? No one knows. I will have more to say about this below.

MACD (WEEKLY) = Neutral. The weekly MACD is still giving mixed signals. The MACD line is above the zero line, which is bullish. The MACD line is even with its 9-day signal line, a neutral reading. As mentioned in the past, MACD does not work in a low-volatility environment. Until volatility returns, use another indicator. 

Daily Intraday Volatility (VIX) = 15.45= The VIX keeps moving lower and lower (as the RSI keeps moving higher and higher). One day volatility will return with a vengeance, but until then, be patient.

Comment:  A ridiculously low VIX and an extremely overbought RSI during the traditionally worst two months of the year (for stocks). I am not in the prediction business so I won’t even try, but I can say there are red flags everywhere.

As I wrote above, RSI on the SPX hasn’t been this high since last year, and that ended badly. I have no doubt this market is going to end badly, but I sure wouldn’t make a bet on when. Why? Because the algos are overriding all of the technical and fundamental signals. We are really in uncharted territory, and have been for a long time.

Can the algos keep running the market higher while RSI gets even more overbought? Yes, indeed. Just be aware that something will probably come out of left field one day and catch everyone by surprise. Just be on guard. At RSI 72.36, I am in awe. And yet, overbought markets can get more overbought (especially when your best friend is an algo).

Bottom line: Be defensive and that means not taking big risks in this environment. The market is moving higher on hopes and wishes, and not much else.

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

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

WHAT THE INDICATORS ARE TELLING US 

As you know, one of my favorite indicators is the weekly RSI. I wrote a timely column on RSI for MarketWatch that is out today, and here is the link: https://on.mktw.net/3lLcj4Y .

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

One-week trend = The bulls squeaked out a win last week. SPX rose from 4395 to 4436, a 41 point advance. Futures are LOWER on Sunday night as the indexes flirt with all-time highs.

RSI: (S&P 500) @71.10 (WEEKLY) = Extremely Overbought. Read my column on RSI (link above). RSI is in the danger zone so it’s not surprising that the futures are lower on Sunday night. If RSI is correct, the market is in imminent danger of reversing. However, the algos will fight furiously to defend against any downturn.

MACD (WEEKLY) = The weekly MACD is as flat as a pancake. It is above its zero line and even with its 9-day Signal Line. Sadly, MACD does not work in a low-volatility environment, so until volatility returns, use another indicator.

Daily Intraday Volatility (VIX): 16.16= Fear remains in the Twilight Zone. With a high RSI and a low VIX, trouble is coming. Prepare for a rocky road market environment in the near future.

Comment:  The star of the show is RSI, which is giving an extreme overbought signal. Combined with a low VIX and all-time highs on SPX, prepare for some fireworks in the near future, perhaps even this week. On the plus side, the jobs number was excellent last week, which helped to propel the markets higher.

On one hand, the algos will work furiously to negate any sell signals, so expect a battle. On the other hand, since RSI has been so accurate, I am putting my money on the indicators: It is telling us the market is ripe for a pullback. (No one knows how far it will go.)

This will be an interesting week. I want to see how much power the algos will use to pump the market higher, and whether they succeed to override the technical signals. I would personally be surprised if we rally this week, but anything is possible.

Bottom line: If you trust the indicators and oscillators, play defense this week. That means trading small and smart. Be prepared for any scenario, even if it is not what you expect.

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

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

WHAT THE INDICATORS ARE TELLING US 

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

One-week trend = The bulls and bears fought it out last week. The bears won the week by a small margin, even while the Fed had their monthly meeting. SPX fell from 4411 to 4395, a puny 16 point drop. Futures are HIGHER on Sunday night. After hitting an all-time high a couple of weeks ago, the bulls may try to break more records.

RSI: (S&P 500) @69.42 (WEEKLY) = Overbought. Once again, RSI warned us the market was overbought and in the danger zone (70 and above). It could have been a disaster last week but the algos did their best to negate the technical signals. If SPX rallies strongly this week, be on the lookout for a strong reversal (especially if RSI blows past 70).

MACD (WEEKLY) = MACD is as flat as a pancake. It is above its zero line and even with its 9-day Signal Line. As you may remember, MACD is not very effective in a low-volatility environment. Be patient, as this brilliant indicator will shine in the future when volatility returns.

Daily Intraday Volatility (VIX): 18.24 = Fear is still on holiday. NOTE:  VIX rose a point during the week but remains moderately low. That tells me that traders are a bit cautious as the market reaches all-time highs. 

Barchart Stock Evaluator for SPY and QQQ (link below): SPY are both 100 percent strong buys (according to this indicator). 

Comment:  The market (SPX) remains overbought and in the danger zone. RSI has given us excellent signals over the last few months. This week, it’s possible RSI will rise above 70 (on SPX). If that happens, be on guard for a reversal. But don’t take heavy short positions as the algos will be ready to pounce on any pullback.

Additional analysis from Lance Roberts: “With that said, we are entering into the two weakest trading months of the year. Stocktrader’s Almanac had a good note on why the rally could experience a “pause” over the next two months. 

“For the past 33 years from 1988-2020 August and September are the worst two months of the year for DJIA, S&P 500, and NASDAQ. August is the worst for DJIA and S&P 500 and September is worst for NASDAQ. 

Despite the persistence and resilience of this bull rally market internals and technicals are showing some signs of fatigue. END

And there you have it: The indexes are overbought and we are entering the most difficult two to three month trading period. Volume is low but the algos don’t care. They pounce on any pullback.

Bottom line: We are getting many mixed signals so predicting what will happen this week is near impossible. There are so many cross currents from so many sources it’s hard to know which “side” will win. Be patient but also be flexible. Be on the lookout for a major trend change one of these days.

Good luck out there and stay safe.

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

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

WHAT THE INDICATORS ARE TELLING US 

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

One-week trend = The bulls came roaring back. The bulls took back control last week (after a short-lived selloff on Monday), and ran with the ball. SPX rose from 4327 to 4411, a spectacular 84-point gain in one week. Futures are LOWER on Sunday night. The all-time SPX high is 4415, which means KAPOW – we are at the top.

RSI: (S&P 500) @70.96 (WEEKLY) = Extremely Overbought. Once again, RSI is in the danger zone (above 70 and above), reaching extreme levels. As a reminder, when RSI reaches these levels, it’s been remarkably accurate at warning of a reversal. Although you shouldn’t use RSI to time the markets, the odds are on the side of the bears this week (according to this indicator).

MACD (WEEKLY) = MACD is as flat as a pancake. Again, MACD is above its zero line and even with its 9-day Signal Line. MACD is not giving a clear signal on the weekly. 

Special note on MACD: Some of you may wonder why MACD has been unable to give a signal for weeks. The reason is that MACD works off of volatility. When there is low volatility, as there is now, MACD will not be as effective. Be patient, because this brilliant indicator will shine in the future when volatility returns.

Daily Intraday Volatility (VIX): 17.20 = Fear has been temporarily ignored. NOTE:  VIX dropped a bit last week but didn’t plunge. That tells me that traders are a bit cautious as the market reaches all-time highs.

Barchart Stock Evaluator for SPY and QQQ (link below): SPY are both 100 percent strong buys (according to this indicator). 

Comment:  The bears owned the market for a week and a day, and then the bulls took control, but on low volume. That is not a good sign, and points to an algo buy-on-the-dip program. And it worked. The market is at all time highs with not a worry in the world.

Except for RSI, which has put out the red flag (when RSI rises above 70, as it is now, the market is extremely overbought). Since RSI has been so accurate over the last few months, I would not ignore its signal. It doesn’t mean to run out and sell everything, but be aware that the market has a date with its destiny.

Sure, the bulls could run the market even higher this week but it’s playing with fire. Nevertheless, based on the accurate RSI signals from the past, the odds favor a short-term reversal. (And don’t believe the ridiculous reasons from the touts on TV explaining “why” there was a market pullback.)

This spectacular market has run up too fast and too high on nothing but hopes and dreams and low interest rates. It’s dangerous up here in the stratesphere, so caution is advised.

The futures are lower on Sunday night but that could change in the morning. Let’s see if this uptrend has some legs during the week. If you have trading profits, it never hurts to take money off the table, a choice only you can make.

Note: The Fed meets on Tuesday and Wednesday, which is typically a bullish signal (but not always). There are lots of mixed signals so guessing direction is next to impossible this week.

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

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

WHAT THE INDICATORS ARE TELLING US 

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

One-week trend = The uptrend stalled. The bears took back control last week, at least temporarily, and SPX dropped by 25 points, falling from 4352 to 4327. As usual, RSI warned us last week that the market was due for a pullback (although a small one). Futures are LOWER on Sunday night. 

RSI: (S&P 500) @67,54 (WEEKLY) = Overbought. RSI was right again. After surpassing 70 last week (red flag), RSI fell back to normal overbought levels. When RSI on the SPX rises above 70, it is a warning sign, and it’s been remarkably accurate. Nevertheless, don’t use RSI for timing because overbought markets can get more overbought.

MACD (WEEKLY) = Same ole, Same ole. MACD is above its zero line and even with its 9-day Signal Line. Once again, MACD is not giving a clear signal on the weekly.

Daily Intraday Volatility (VIX): 18.45 = A smidgen of fear. NOTE: VIX climbed out of the basement last week and volatility increased. Fear is still in short supply, but at least some bulls were forced to face reality.

Research Note: A reader from Portugal — Gonçalo — correctly pointed out that in 2019, VIX was at 11, and in autumn of 2017, VIX went as low as 9! (We believe this was the “all-time” low.) Thanks to Gonçalo for correctly identifying how low VIX can go.

Barchart Stock Evaluator for SPY and QQQ (link below): SPY are both 100 percent strong buys (according to this indicator). 

Comment:  While everyone was betting on the market to go to the moon, RSI told us that things were getting a bit frothy. That was confirmed by the low VIX. And although the market didn’t crash or even fall by that much, it did fall. The next time RSI rises above 70, it’s an orange alert.

As I’ve written before, no one can tell you when the longest-bull-market-in-history will end, only that it will end one day. It could end in a whimper or a crash, but it is going to end. And each day that goes by, the clock is ticking.

Another worrisome clue is inflation, which appears to be rising. Just look at the price of almost everything important, like food and gas. In case you don’t know, the market typically doesn’t like inflation. Meanwhile, the Fed dismisses inflation concerns as being transitory. Hmmm, I wonder how long they can say that!

This week is unpredictable. The bears are trying to keep control, but judging by history, the bulls will not give up the ball without a vicious fight.

Bottom line: No one knows who will win the week, so placing a bet on one side or the other is a gamble. Until there is evidence of a reversal, the odds are still with the bulls although it’s a lot more dangerous now.

_______________________________________________________

Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

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