The Weekly Trader

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

 

AAII survey (6/3/2015)

27.3% Bullish. 48.0% Neutral. 24.6% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (6/2/2015)

51.5% Bullish.  15.8% Bearish.

Bearish: If sentiment is over 60% bullish. (Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 14.21 (on 6/5/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 43.49 (on 6/5/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is below its 50-day moving average (but above its 100- and 200-day MA), and pointing down

Bearish (Short-term Downtrend): Index crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line but below its red 9-day signal line and pointing down. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

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

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.40% (on 6/5/2015).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). Note: Ouch! Bonds got smacked last week. 

 

Analysis: It will take an unexpected disaster to shake the confidence of the financial media, who are overwhelmingly bullish along with most on Wall Street. Complacency describes how most pros feel, which has helped to push NYSE margin debt to all-time highs. On the other hand, many retail investors are neutral (and unsure of market direction). Sideways markets are confusing, and that is why we are getting mixed signals. On the technical side, the major indexes fell below their 50-day moving averages last week. This is significant but it might be temporary. Observe whether the indexes can eventually claw their way back higher (with the Fed’s help, of course).

Opinion: Last week I said we could be in for a wild week and we were, but it was mostly in the bond market. Bonds got smashed last week while stocks retreated only a little.

As a result of the world’s central banks actions, interest rates have been kept artificially low. As you may know, in some countries interest rates are negative. One day we will look back at these times and wonder how it got so ridiculous.

The amazing part is that a majority of people believes this is “normal” and that low interest rates and high stock markets will continue indefinitely. I have news for people who don’t study history: One day the financial fantasy will end, and it won’t be pretty. Unfortunately, no one can predict when reality will return to the market, but it’s going to happen. 

It’s not easy being a realist today. Savers are punished while debtors are rewarded. The more you borrow and the more margin you accumulate, the bigger your reward. This works beautifully in a bull market but when the party ends, it gets ugly fast. It is not easy to stay on the sidelines while other people are making money, but sometimes that is the most prudent action.

If the market plunges, it is guaranteed the Fed will not raise interest rates no matter what the data says. The world has become so addicted to low interest rates that any move to raise rates will be upsetting, to put it mildly. Add in the Greek drama, world conflicts, and confusing economic data and you have a very dangerous market. Nevertheless, most bulls (which is the majority) believe in the power of the Fed to keep the party going no matter how bad things get.

Bottom line: This is another important week. The market could go in either direction although it’s leaning south. The dangers are increasing but few seem to be care. This is the time to be alert.

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

My latest MarketWatch column (June 1) is here: http://goo.gl/Tt7684

 

AAII survey (5/27/2015)

27.0% Bullish. 47.9% Neutral. 25.1% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (5/26/2015)

48.5% Bullish.  14.9% Bearish.

Bearish: If sentiment is over 60% bullish. (Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 13.84 (on 5/29/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 48.90 (on 5/29/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is above its 50-, 100, and 200-day moving averages and pointing down

Bearish (Short-term Downtrend): Index crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line but slightly below its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

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

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.10% (on 5/29/2015).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). 

 

Analysis: Once again, the sentiment indicators haven’t budged. Complacency is rampant among most pros while retail investors are neutral. On the technical side, although the indexes are above their 50-day moving averages, it’s pointing down. We will learn this week if Friday’s late day selloff was significant (likely) or the result of the Russell 1000, 2000, and 3000 annual rebalancing (unlikely). Even more interesting, there was a rash of bad news last week: For starters, Q1 GDP was revised to a drop of -0.7%, i.e. in contraction territory. In addition, the University of Michigan Consumer Sentiment slumped to a six-month low of 90.7 from 95.9 in April, a major disappointment. Finally, the Chicago PMI plunged to a 6-month low of 46.2 vs an April reading of 52.3. Analysts expected a reading of 53.0. The only good news for the bulls is that the market didn’t retreat more on these numbers.

Opinion: The spinners were hard at work on the financial programs promising that next month will be better. Perhaps they are right, but objective investors must take notice. 

The market rises on hope and falls on fear. Don’t forget that investors are slow to sell as long as there is hope that the market (or their stock) will rise. If investors are afraid, however, they will sell quickly. Right now, there is little fear in the market, but that could change quickly, one of the reasons you need to be on guard. 

It is not that useful to try and figure out “why” the market goes up and down each day. Unfortunately, that is exactly what most in the financial media focuses on (along with an endless string of predictions). Instead of focusing on why the market moved, concentrate on what is actually happening.

The facts are that the market has been in a sideways pattern for months. Because the indexes have been unable to break out of this pattern, the market could go in either direction. As long as investors are hopeful that the economy will get better, that Greece will get rescued, that the Fed won’t raise interest rates, then investors won’t sell. For months, buying volume has disappeared, but few are selling. 

However, if investors start to doubt that the economy will improve, or that the Fed has everything under control, or that the Greece debt problem will be solved, then investor hopes will be dashed. That’s when you will see fear enter the market for the first time in years.

I do not know when fear will enter the market, but I do know it will happen eventually. And when it happens, the market will plunge quickly as institutions and retail investors cut their losses. By the way, margin debt on the NYSE has hit a new record high ( http://goo.gl/XDzmCo ). Margin debt is a huge red flag and it’s been climbing for years.

Bottom line: Based on the disappointing economic numbers, extreme margin debt, world economic problems, and extreme complacency, the odds are good this sideways market will break down. It may be this week or in a few months, but unless buying volume increases, this market is in danger. This week is extremely important as we may finally find out the truth. Hold onto your seats; it could be another wild ride. 

 

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

 

AAII survey (5/20/2015)

25.2% Bullish. 49.8% Neutral. 25.0% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (5/19/2015)

50.6% Bullish.  15.8% Bearish.

Bearish: If sentiment is over 60% bullish. (Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 12.13 (on 5/22/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 54.89 (on 5/22/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is above its 50-, 100, and 200-day moving averages and pointing down

Bearish (Short-term Downtrend): Index crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line and above its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

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

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.22% (on 5/22/2015).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). 

 

Analysis: Once again, the indicators are giving us mixed signals. As you can see from the AAII survey above, retail investors are overwhelmingly neutral (by the way, that is the highest neutral signal in a dozen years). On the other hand, financial professionals are overwhelmingly bullish. Few pros seem to believe the market will go down, and they are putting their client’s money where their mouths are. Fortunately for the pros, the short-term trend is still up although the market is in a sideways pattern. With a sideways market, it could break out higher or plunge lower, and no one can predict which way. Based on the indicators, it is suggested you protect asserts and reduce risk (always good advice but especially now).

Opinion: As mentioned above, the market is going sideways. Although the market is in a short-term uptrend, looks can be deceiving. For example, a number of world events could threaten the markets. Take your pick, starting with Greece. Also, Janet is hoping the economic data improves so she can justify raising rates. She may not get her wish. Most pros are all in while cautious retail investors are sitting still. Unlike in past markets, there isn’t a lot of enthusiasm for this market, especially as it climbs higher.

This is a confused sideways market that could go in either direction. The Fed is ready to prevent a bloodbath with words or delaying tactics.  If the market breaks out higher, the bull market continues until it exhausts itself. If the market breaks lower, however, nervous investors might hit the sell button.

Bottom line: Bad breaking news could send this market lower so be alert. One of these days the market will take a strong stand in either direction. Meanwhile, be patient.

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

 

AAII survey (5/13/2015)

26.7% Bullish. 46.9% Neutral. 26.4% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (5/12/2015)

47.5% Bullish.  15.8% Bearish.

Bearish: If sentiment is over 60% bullish. (Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 12.35 (on 5/15/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 57.42 (on 5/15/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is above its 50-, 100, and 200-day moving averages and pointing up

Bearish (Short-term Downtrend): Index crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line and nearly even with its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

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

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.14% (on 5/15/2015).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). 

 

Analysis: Sentiment retreated last week after the indexes had three straight days of losses. Even some pros felt less enthusiastic. On Thursday, however, the Dow climbed by 192 points, bringing us above 18,000 on the Dow, 2,100 on the S&P 500, and 5,000 on the Nasdaq. Major support is at these price levels. If the indexes drop below these levels this week, it is a danger sign. If the indexes can hold those levels, it’s bullish in the short term. For the third week in a row, technical indicators are not giving clear signals, and in fact, many indicators are not working at all. Bottom line: It is impossible to predict which direction the indexes will go this week based on technical and sentiment indicators. However, danger signs still exist, including economic and geopolitical turmoil. More alarming is overwhelming complacency. Most investors do not believe there is any danger, and that is a dangerous sign.

Opinion: Once again, the market was saved by a miraculous one-day rally, this time on Thursday, not Friday. It appears as if a major buy program was initiated on Thursday, and off to the races we went, although the market internals were weak. It’s surprising to watch the market climb higher on mediocre earnings and dangerous world conditions. Nevertheless, this is the market we have, so be patient. 

More knowledgeable professionals are warning of a major correction or crash. As you remember, respected market timer Tom McClellan gave out a sell signal for this week. We’ve gone a long time without a major correction, which defies logic. And although some people believe “it’s different this time,” it never is. The market cannot stay levitated indefinitely, although it seems that way sometimes. It is guaranteed there will be a major pullback, but I certainly can’t predict when it will occur. It could be this week, or next, or longer, but it will occur. More financial professionals are warning that it’s time to be cautious. 

We’re at an all-time high on the major indexes. If this is a true bull market, we should move higher on stronger volume. However, I suspect we will have another failed rally soon. That is when the fireworks will begin. Meanwhile, sometimes I think we are in the Twilight Zone. By the way, gold is getting interesting again, so keep your eye on that commodity. Bonds got crushed all week until a sudden Friday rally. Strange things are happening to various markets, and that cannot be a good sign.

Bottom line: The market has gone nearly sideways for three weeks. It’s only a matter of time before we find out what it’s really made of. 

 

 

Each weekend, I study market behavior using sentiment and technical indicators. My goal is to use clues, observation, and indicators to analyze underlying market conditions. If you can determine the current market environment, it may help you to create profitable trading strategies.

RELEASED: Understanding Options (McGraw-Hill, 2E), Understanding Stocks (McGraw-Hill, 2E), Start Day Trading Now (Adams Media), and Predict the Next Bull or Bear Market and Win (Adams Media): http://bit.ly/1bl0ZNk

My latest book (eBook) has been released: Prepare Now and Survive the Coming Bear Market. Amazon: http://goo.gl/2wWC8X Nook: http://goo.gl/VQstmr  Smashwords: http://goo.gl/eBpYBT 

My latest MarketWatch column on how stock bubbles burst: http://goo.gl/alw6R1

 

AAII survey (5/6/2015)

27.1% Bullish. 46.1% Neutral. 26.8% Bearish. 

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investors Intelligence (5/5/2015)

52.5% Bullish.  13.9% Bearish.

Bearish: If sentiment is over 60% bullish. (Note: Percent of bears is still at historic lows. 13.3 % is the 1987 low.)

Bullish: If sentiment is over 60% bearish.

 

VIX: 12.86 (on 5/8/2015)

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

RSI (S&P 500): RSI is at 55.92 (on 5/8/2015)

Overbought (i.e. Bearish): When RSI rises to 70 or above.

Oversold (i.e. Bullish): When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Moving Averages (daily): The S&P is above its 50-, 100, and 200-day moving averages and pointing up

Bearish (Short-term Downtrend): Index crosses under 50-day, 100-day, or 200-day MA.

Bullish (Short-term Uptrend): Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD (S&P 500): MACD is above its zero line and below its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

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

Bullish: MACD line crosses above zero line. MACD line crosses above 9-day signal line. 

 

Bonds: U.S. 10-year yield is at 2.15% (on 5/8/2015).

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders). 

 

Analysis: It’s déjà vu all over again. Last week, the market sold off until the jobs number were released (or perhaps it was the British election), but the market gained back all of its losses. This is the second week in a row when the market was saved by a Friday rally. In fact, the indicators haven’t moved much in two weeks. Retail investors are getting more cautious while many in the financial media believe in miracles. Most technical indicators are not giving strong signals so once again, we could go in either direction. The market appears to be topping out but the proof is in the market. The indexes must surpass their all-time highs on strong volume if the bull market is for real. Up to now, we haven’t seen that.

Opinion: Tom McClellan, editor of the popular McClellan Market Report and a market timer, gave out a sell signal from his timing models and seasonal patterns. He believes the selloff will occur from May 19 to May 22. In a week, we’ll know if he’s right.

This market is playing mind games with the bears or anyone who believes we’re in a bubble. It’s easy to get frustrated with the market, especially if you believe a correction or crash is imminent. It’s very tempting to do something instead of just sitting and waiting. But to paraphrase Jesse Livermore before the 1929 crash: “It’s the sitting and waiting that makes the money.” 

Unfortunately, it’s not easy to sit and wait while it appears that other people are making money. Most bears have thrown in the towel or in some cases, went long. I’ve also observed that most investors believe they can get out in time before the next correction. (Good luck with that strategy.)

I believe the market is at a dangerous crossroads. Thanks to the policies of the Fed (QE 1, 2, and 3 and low interest rates), the market has gone up fast and high. Even now, most investors believe the Fed will keep the party going indefinitely. It is hard to sit on the sidelines and refuse to participate. Although the pressure to beat the indexes is intense, the only sane action to take in this environment is to take money off the table. Unfortunately, sanity left this market a long time ago. One day we may look back at these days and shake our heads in disbelief. (Sometimes I feel like I’m in the Matrix.)

Bottom line: Let’s see what the market has in store for us this week. We surpassed Dow 18,000, S&P 2,100, and Nasdaq 5000 thanks to the Friday rally. I will watch closely to see if there is strong support at these price levels. If we break below these levels, it will be another wild week.