The Weekly Trader

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

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

S&P 500 one-month trend: SPX is in a strong uptrend that seems unstoppable at the moment.

RSI: (S&P 500) @ 74.11 = Extremely Overbought. SPX is in the danger zone, and although it can keep moving higher, caution is advised.

MACD: Above Zero Line and above Signal Line = Bullish

Daily Intraday Volatility: 12.05 = Extremely Low (Bearish)

Comment: It’s extremely rare to see such an overbought market. The indexes hit all-time highs on Friday with the Dow surpassing 28,000 for the first time ever. RSI is extremely overbought at 74.11, and although the indexes can still scream higher, a day of reckoning will come (eventually). Other sentiment warnings: The VIX is in the basement, and the Investors Intelligence sentiment survey (II) is at 57, near a screaming sell. It’s been many years since I’ve seen extreme sentiment numbers like these.

As I warned last week, it’s dangerous to short an uptrend, and that advice still stands. This market has all the makings of a blow-off top, so caution is still advised if trading the indexes.

There is still money to be made if trading individual stocks. The risk-reward of trading the indexes is poor, but there are still excellent opportunities, both bullish and bearish, with stocks.

Regarding the overall market, institutions are mostly on the sidelines with the algos (and the Fed’s QE) fueling the rally. It’s quite remarkable to see the market rising on low volume and low volatility. Buy and holders are delighted while anyone shorting the indexes (not recommended at this time) is pulling his or her hair out.

Where do we go from here? I’m watching in awe as the market gets more overbought, knowing we are experiencing a rare blow-off top. I’m watching RSI to see how high it can go, and am amazed it’s near 75 without any meaningful pullback. No one can predict how high the indexes will go but when it eventually reverses, it will be frightening.

Bottom line: Enjoy this rare market event while it lasts because this is one for the history books. Meanwhile, I recommend reading the following two articles, which will give you additional insights into the current market:

Sven Henrich (Northman Trader): https://bit.ly/2OknkYy

Lance Roberts (realinvestmentadvice.com): https://bit.ly/2KqpdSn

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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


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

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

S&P 500 one-month trend: SPX is in a strong uptrend.

RSI: (S&P 500) @ 70.22 = Extremely Overbought. SPX is in the danger zone, and although it can keep moving higher, a pullback is imminent.

MACD: Above Zero Line and above Signal Line = Bullish

Daily Intraday Volatility: 12.07 = Extremely Low (Bearish)

Comment: It’s rare to see such overbought conditions. With positive news regarding China, the Fed’s continuation of QE ($60 billion+ a month), and low interest rates, the market appears to be headed to the moon. But anyone who studies the stock market knows we’re in the danger zone. With a RSI of 70 and a VIX at 12, it won’t take much to reverse this market. Also add in the fact that my investor friends are bragging again, always a sign we are at or near a top.

Can the market go higher from here? Yes, it can, which is why you never short an uptrend. But wise traders and investors are on the lookout for signs of a stall and reversal. Typically, that first pullback will catch most people by surprise. Don’t waste your time figuring out “why” the market pulled back (after it occurs). But do spend your time evaluating whether the pullback is short-term (buy on the dip) event, or a longer-term selloff.

Why am I so confident there will be a pullback? Because we’ve gone too far and too fast, investors are giddy, and some of the technical indicators I follow are flashing warning signs. The algos are doing everything possible to keep this market propped up with help from the Fed, and so far they’ve been successful. But when investors and institutions get spooked one day, and they should in the near future, the pullback will be intense.

Investors who don’t read the clues or indicators are perhaps afraid to miss out on the so-called “Christmas rally.” This is what happens at market tops: the ones who resisted buying until now throw caution to the wind and jump in, almost always at the wrong time. As I said, the markets could go higher from here, but the risks are too great and the rewards too small at these overbought levels.

Bottom line: You have to make your own decisions what to do, but I personally have not seen such extreme overbought conditions in many years. Traders with more experience than me have made similar observations. Therefore, go long if you must but tread cautiously.

Note: Monday is Veteran’s Day but the markets are open. To all veterans: Thank you for your service.

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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


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

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

S&P 500 one-month trend: SPX is in an uptrend.

RSI: (S&P 500) @ 66.56 = Overbought (at 70 RSI it will be in the danger zone, i.e. extremely overbought).

MACD: Above Zero Line and above Signal Line = Bullish

Daily Intraday Volatility: 12.30 = Extremely Low (Bearish)

Comment: The Fed did its job, so in addition to starting QE again with $60B a month (although they say it’s not QE), they also cut interest rates, and injected additional liquidity via the repo market. As a result, the market is at all-time highs while debt levels have gone through the roof (trillion dollar deficits and $23 trillion in U.S. debt). Even with all this stimulus, GDP is mediocre at best at 1.9%, and Chicago PMI at 43.2 with 47 expected. Imagine where the stock market would be if the Fed wasn’t injecting billions into the financial markets.

The SPX three-month chart is a thing of beauty but the market has moved up too far and too fast recently. In my opinion, caution is advised at these levels. A sudden and severe pullback would not be surprising, in fact, it’s expected. Before that occurs, we could have one last “blow-off top” where RSI surpasses 70 as the market makes one last gasp higher.

Bottom line: These are dangerous and strange times. Old-timers tell me they have never seen a market this overbought with so little volume. Below are links to two excellent posts, one from a technical perspective, the other from an economic perspective. The conclusions are similar: The market is extremely overbought (and yet, it could get more overbought before retreating).

Link to Sven Henrich (Northman Trader): https://bit.ly/34ti2Ap

Link to Lance Roberts (realinvestmentadvice): https://bit.ly/2NAamWd

_____________________________________________________________

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


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

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

S&P 500 one-month trend: There is no clear trend at this time, but there is a double-top, so caution is advised.

RSI: (S&P 500) @ 60.57 = Slightly Overbought

MACD: Above Zero Line and Above Signal Line = Bullish

Daily Intraday Volatility: 12.65 = Extremely Low (Bearish)

Comment: SPX finally rose above 3000 last week with a last gasp push on Friday. But so much is going on behind the scenes, it’s hard to keep up. Here is a short list:

  1. The Fed is injecting over $60 billion a month into financial markets with the Dow and SPX near all-time highs, and economic conditions stable. The question is why.
  2. In addition, the Fed may cut interest rates, or say they will. Once again, why is the Fed taking these extreme measures with the market so high and economic conditions so tame?
  3. The indexes are rising but volume is extremely low, a negative divergence. It appears as if only the machines are trading, not people.
  4. The VIX is at 12.65, an extremely low reading and a warning sign. When I look at the 3-month chart of the VIX, it may still go lower, but typically it explodes higher, and quickly, when it hits at or near 12.

This is a difficult market to trade the indexes but there are good opportunities with individual stocks, long or short. Looking at the overall market, while we are flirting with all-time highs, and are still above SPX 3000, traders know that the QE the Fed has initiated combined with low interest rates is propping up the market. With all that help from the Fed, it’s not surprising that the indicators above are bullish.

Meanwhile, there are numerous technical and fundamental signs that all is not well in Denmark. Here is an excellent analysis of the current market from Sven Henrich (Northman Trader) that explains the dangers in depth: https://bit.ly/32SmwAc

Bottom line: These are weird times. Until the market makes up its mind, caution is advised. The Fed meets on Tuesday and Wednesday, so the Chairman’s words will be closely scrutinized. As you know, on Fed days, it can be tricky to trade, so be careful!

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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


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

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

S&P 500 one-month trend: There is no clear trend at this time. SPX retested 3,000 but failed to seal the deal on Friday.

RSI: (S&P 500) @ 54.93 = Neutral

MACD: At Zero Line and at Signal Line = Neutral

Daily Intraday Volatility: 14.25 = Low (Bearish)

Look at the awful charts of a few of the stocks I’ve been following: JNJ, NOW, COUP, AYX, WDAY, BA

Comment: I had been waiting for a failed rally all week and it came true on Friday. Many individual stocks got crushed as the day wore on, and even the indexes slowly succumbed to the selling pressure. Looking at the bigger picture, however, the indexes are holding up while certain stocks (look at the list above) are getting savaged.

As Lance Roberts wrote in his latest piece (link to his site at bottom), the bulls got everything they wanted, but they still couldn’t bring SPX above 3000 for long. According to Lance, here is the bull’s wish list (paraphrased), which has been fulfilled:

  1. ECB announced more QE
  2. Fed reduced capital requirements on banks
  3. Fed initiated QE of $60 billion in monthly Treasury purchases (but they are not calling it QE).
  4. The Fed is cutting rates.
  5. There are hints we could be exiting the China trade war
  6. Economic data is improving in the short term.

Even with all that help from the Fed, there is also a lot of negative news, as listed by Doug Kass (paraphrased):

  1. Untenable debt loads
  2. Unresolved trade war with China
  3. Global manufacturing recession is seeping into services sector
  4. Market structure is “frightening”
  5. We are in an earnings recession
  6. Valuations on traditional metrics are sky high (i.e. it’s bearish)
  7. Few expect the market to “undergo a meaningful drawdown”
  8. Private equity market crashing and burning
  9. WeWork’s problems are contagious

So there you have the bull and the bear case, which leaves us stuck in the middle again (surrounded by clowns and jokers, as the song says). The SPX rose above 3000 for a few minutes during the week before retreating, so if the bulls want to win this battle, they will have to find a way to move well above SPX 3000, and stay there.

The bears, on the other hand, have had multiple chances to take control, but they failed every time. The bulls are still in control and until proven otherwise, the ball is in their court. In fact, every time there was a meaningful selloff, the algos jumped in to either suppress volatility, or spike the market higher (or both).

That leaves us with this week, when we should have a better idea who will win. SPX must be watched closely to see if the bulls can finally rally the market for a final blow off top, or whether the bears can finally take control. Another worry for the bulls: a double top has formed on the SPX.

Bottom line: We could go either way this week, but the clues and indicators are still not clear enough to predict which direction. Just watch and react quickly when one side or the other takes control. Otherwise, we could continue with this tug of war for a while longer until someone is victorious.

Here is a link from Sven Henrich (Northman Trader), which includes an excellent video of the current state of the market: https://bit.ly/31Ct5Wg

_____________________________________________________________

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