The Weekly Trader

Here are the most recent market indicators:

S&P 500 is above its 200-day moving average = Bullish 

S&P 500 is above its 50-day moving average = Bullish

S&P 500 one-month trend = Uptrend (Bullish)

RSI: (S&P 500) @69.79 = Overbought (Bearish)

MACD: Above zero line but even with its signal line (Neutral)

Daily Intraday Volatility: Moderate

Comment: With help from the algos, the market was able to rally during the week, but on low volume and enthusiasm. The jobs number was excellent but the market yawned at the results, but managed to drift slightly higher.

By several measurements, the market appears to be in a bubble, yet most people don’t realize it. In fact, we won’t know it’s really a bubble until after it pops or deflates. Judging from history and experience, this is a bubble that will not end well (they never do). Unfortunately, no one knows when or how it will end. But all bubbles end, and all end badly and with a huge amount of pain for investors.

I admit I’ve been amazed this market bubble has grown so big and has continued for so long. Think about this: The Fed tried to let the air out of the market bubble by raising interest rates .25% in December, and the market plunged by 20%.

Since December, the market staged one of the greatest comebacks in history. With RSI at 70, we are definitely in overbought territory, so it won’t take much to send the indexes lower.

This weekend, the financial press was filled with positive stock market news, and some of the most bearish analysts are either throwing in the towel or saying “the market will go to SPX 3000 before it retreats.” Even those calling for a recession claim it won’t happen for at least two years.

If there is anything I know about the market, no one knows what is going to happen. Once you realize that no one knows anything, then you will take steps to diversify (if you are an investor) or hedge (if you are a trader). You might be giving up some profits when using hedge strategies but it’s better than losing your shirt when the market either #1. Plunges by 20% or more within a month or so, or #2. Rises to SPX 3000 before plunging by 20% or more.

Meanwhile, here’s a must read excerpt from Lance Robert’s column (his website is listed below). In particular, look at the SPX charts:

“There Is A Decent Probability You Have Never Seen A Bear Market

There is a sizable contingent of investors, and advisors, today who have never been through a real bear market. After a decade long bull-market cycle, which only seems to go up, you can certainly understand why mainstream analysis continues to believe the markets can only go higher.

What is concerning is the rather cavalier attitude the mainstream media takes about bear markets.

“Sure, a correction will eventually come, but that is just part of the deal.”

What gets lost during these bullish cycles, and is found in the most brutal of fashions, is the devastation caused to financial wealth during the inevitable decline.

Let’s look at the S&P 500 inflation-adjusted total return index in a different manner. The first chart shows all of the measurement lines for all the previous bull and bear markets with the number of years required to get back to even.

What you should notice is that in many cases bear markets wiped out essentially a substantial portion, if not all, of the previous bull market advance. This is shown more clearly when we look at a chart of bull and bear markets in terms of points.

Whether or not the current distribution phase is complete, there are many signs suggesting the current Wyckoff cycle may be entering its final stage of completion. 

Let me remind you of something Ben Graham said back in 1959:

“‘The more it changes, the more it’s the same thing.’ I have always thought this motto applied to the stock market better than anywhere else. Now the really important part of the proverb is the phrase, ‘the more it changes.’

The economic world has changed radically and will change even more. Most people think now that the essential nature of the stock market has been undergoing a corresponding change. But if my cliché is sound,  then the stock market will continue to be essentially what it always was in the past, a place where a big bull market is inevitably followed by a big bear market.

In other words, a place where today’s free lunches are paid for doubly tomorrow. In the light of recent experience, I think the present level of the stock market is an extremely dangerous one.”

He is right, of course, things are little different now than they were then.

For every “bull market” there MUST be a “bear market.” 

The sell-off last year, which amazingly enough has already been forgotten, should have been a wake-up call to just how quickly things can change and how damaging they can be.

There is no difference between a 100% gain and a 50% loss.

(For the mathematically challenged: If the market rises from 1000 to 2000 it is a 100% gain. A fall from 2000 to 1000 is a 50% loss. Net return is 0%)

Understanding that investment returns are driven by actual dollar losses, and not percentages, is important in the comprehension of how devastating corrections can be on your financial outcome. So, before sticking your head in the sand and ignoring market risk based on an article touting “long-term investing always wins,” there is a huge difference between just making money and actually reaching your financial goals.

But experience will cure all of that.

See you next week. “

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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:www.wolfstreet.com


Here are the most recent market indicators:

S&P 500 is above its 200-day moving average = Bullish 

S&P 500 is above its 50-day moving average = Bullish

S&P 500 one-month trend = Uptrend (Bullish)

RSI: (S&P 500) @60.06 = Overbought (Bearish)

MACD: Above zero line but nearly even with its signal line (Neutral)

Daily Intraday Volatility: Moderate

Comment: The market eked out a gain last week with help from the algos, which defended SPX 2800 every time it was threatened. The real action was in the bond market, where yields have plunged (and bond prices rallied) as many investors moved to the safety of Treasuries.

Once again, the market is overbought although not at extreme levels. It’s possible we’ll get a few more rally days but a reversal and pullback is imminent. Thus far, most investors (mostly index investors) are complacent and content without realizing the dangers that lie ahead. Warning signs are everywhere so it’s only a matter of time before volatility appears again and the indexes plunge. Nevertheless, it’s still too early to bet heavily against the market as it could go higher.

Bottom line: The indexes are getting into overbought territory again so a pullback is likely. Keep your eye on SPX 2800 as that is the line in the sand. When that breaks (and no one can predict when), it could be a nasty ride down. Futures are higher on Sunday night so watch and see if the rally will last.

_____________________________________________________

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:www.wolfstreet.com


Here are the most recent market indicators:

S&P 500 is above its 200-day moving average = Bullish 

S&P 500 is above its 50-day moving average = Bullish

S&P 500 one-month trend = Uptrend (Bullish) but reversed on Friday (Bearish)

RSI: (S&P 500) @53.91 = Neutral

MACD: Above zero line but even with its signal line (Neutral)

Daily Intraday Volatility: Moderate

Comment: The RSI went as high as 71 last week (70 is overbought) before plunging to 53.91 on Friday. SPX is currently resting at 2800, which is a major support level. It will be interesting to see if the bulls can hold 2800.

Fed Chairman Powell went beyond the usual dovishness and said that they would do anything to keep interest rates low and make Wall Street happy (my words). On Thursday, the indexes rallied on his kind words. On Friday, the indexes plunged.

Behind the scenes, institutional investors flocked to bonds for protection after U.S. bond yields inverted, a signal that many believe says a recession is near. It’s a warning sign, and although not perfect, it has signaled recessions in the past (the tricky part is the timing, as always). The inverted bond yield was enough to cause panic buying in bonds. Beginning now, be on the lookout for clues of a recession including job losses, poor housing sales, poor auto sales, and store closings.

If we get a recession with interest rates already low and debt so high, the Fed will really be in a quandary. And believe me, with stock prices at overbought levels, we could switch from buying on the dip to selling at any price. If you have huge gains from the stock market, it’s not a bad idea to take some money off the table, a decision only you can make.

Bottom line: All we can do is see if the bears take control again (they haven’t since December) or if the bulls can run this market even higher. No one, and I mean no one, can confidently predict what will happen this week.

_____________________________________________________

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:www.wolfstreet.com



Here are the most recent market indicators:

S&P 500 is above its 200-day moving average = Bullish 

S&P 500 is above its 50-day moving average = Bullish

S&P 500 one-month trend = Uptrend (Bullish)

RSI: (S&P 500) @66.10 = Overbought (Bearish)

MACD: Above zero line but even with its signal line (Neutral)

Daily Intraday Volatility: Low

Comment: The indexes had a slow but steady upward climb last week. It drove most traders crazy but the low volatility and lack of institutional buying keeps buy-and-hold investors calm. No one knows how long this manipulated market will keep going higher, but one day volatility will return again. The VIX is under 13 again, which reflects complacency and calmness. This can’t last forever.

Meanwhile, the Fed meets this week, and Powell will likely go out of his way to keep the good times coming. I doubt he’ll say anything to upset the market. Nevertheless, in the past, volatility has increased right after the Fed minutes are released on Wednesday.

After last week’s slow rally, the S&P 500 is overbought again, so a pullback would not be surprising. That being said, the algos are going to run the market as high as they can until something breaks.

Bottom line: It’s all about the Fed this week. Let’s see if volatility returns to the market, and whether Powell says anything besides, “I’ll do whatever it takes to keep Wall Street happy, and that means I will keep interest rates as low as possible as long as possible because I don’t want the stock market to plunge again.” (my quote but you get the idea).

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_____________________________________________________

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:www.wolfstreet.com


Here are the most recent market indicators:

S&P 500 is nearly even with its 200-day moving average = Neutral 

S&P 500 is above its 50-day moving average = Bullish

S&P 500 one-month trend = Uptrend (Bullish) but Stalled (Neutral)

RSI: (S&P 500) @49.35 = Neutral

MACD: Above zero line but below its signal line (Neutral)

Daily Intraday Volatility: Moderate

Comment: Last week the market finally hit resistance and pulled back. On Friday, the jobs numbers (20,000 new jobs vs 180,000 expected) was horrendous. In a “normal” market, the indexes would have plunged. Although there was a minor pullback at the Friday open, the indexes ended flat thanks to help from the algos, who once again saved the day. (It’s not easy going short in this environment!). Nevertheless, it was a negative week for the indexes.

This week should be interesting. On Sunday night, the indexes are slightly lower. Nevertheless, we will have to see if SPX (S&P 500) can pick itself from the basement (it has retreated back to it’s 200-day moving average) and rally in spite of all of the bad news swirling around.

On the other hand, this market is still overbought so a major plunge in the indexes would not be surprising. Because the Fed, the White House, and the go-go algos all want the market to go higher, it’s not easy to short aggressively. However, if the indexes fail to move above and stay above its 200-day moving average, a pullback is very possible, even a severe one.

Bottom line: Keep your powder dry as this market could go in either direction. Buyers are still on the sidelines (except for the algos). This standoff will be resolved one way or another, and until then, trade cautiously and take profits quickly.

_____________________________________________________

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:www.wolfstreet.com