The Weekly Trader

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

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

One-month trend: SPX is still in a strong uptrend that halted on Friday. It remains to be seen if that was a one-day event or something more meaningful.

RSI: (S&P 500) @ 61.56 = As expected, SPX fell last week, and so did RSI (from 76.56, an extreme reading, to 61.56 (current). SPX still overbought but not extreme.

MACD: Above Zero Line but Signal Line pointing slightly lower = Neutral

Daily Intraday Volatility: 14.56 = Low (Bearish).

Comment: When RSI hit 76.56 last week, it was a warning sign that a reversal was imminent, and it happened on Friday. Although the market is still overbought, it’s backed off from extreme levels. Nevertheless, the intraday reversal on Friday was significant.

As I write this on Sunday night, the futures are down significantly. It’s not surprising as this overbought market smacked into a lot of increasingly bad news. What must be watched is how the market acts as the day progresses. It could go either way, but in the past, the algos have bought on the dip while suppressing volatility. That could happen again.

In addition, there is a Fed meeting this week. As you may know, volatility typically increases on the day the Fed minutes are released (Wednesday). After months of low volatility, it would not be surprising to see volatility spike this week.

It’s also possible that the bears, who have been punished for the last 10 years, might finally have a chance to shine. However, it’s still too early for the bears to celebrate, as we’ve seen this scenario before. A two-day pullback does not make a bear market, so until we see evidence of a trend change, any pullback should be considered as temporary.

How do you know there is a trend change? For starters, the indexes must drop below their 50-day and 100-day moving averages, and stay below. There have been a number of severe pullbacks in the past, but the market has always bounced back. Until the market fails to bounce back one day, stay cautiously bullish.

It will be interesting to see what the Fed does or says this week. Because of the nervousness surrounding Coronavirus, there is a negative bias. Perhaps the Fed can save the week once again.

Bottom line: Be on guard. As volatility increases, so does opportunities, but also mistakes.

Here are two excellent pieces that I recommend reading:

Sven Henrich (Northman Trader): Virus Fears: https://bit.ly/2tRXl4s

Lance Roberts (Real Investment Advice): Market Advance Stalls: https://bit.ly/38J5iaK

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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 still in a strong uptrend that is unsustainable for the long term.

RSI: (S&P 500) @ 76.57 = SPX is extremely overbought. It could go higher, but the clock is ticking.

MACD: Above Zero Line and slightly above Signal Line = Neutral to Bullish

Daily Intraday Volatility: 12.10 = Extremely Low (Bearish). Volatility has taken a temporary vacation.

Comment: RSI is telling us we’re extremely overbought, and although we could get more overbought this week, or next, a pullback is imminent. Everywhere you turn, investors are not only bullish about the future, but euphoric. Common sense has been thrown out the window as nearly everyone has high hopes for the stock market. Bears are in hiding, and the bulls are feeling invincible. The longer the market rises, the more extreme the greed, and the more dangerous it becomes.

You can’t short the indexes right now (too dangerous), but if you are a trader, you can make short-term bullish day trades, which works well on certain days. However, one day we’re going to wake up to a massive pullback, although I admit that predicting that day is impossible.

I’m in awe of the excessive bullishness (thanks primarily to the Fed) with cheerleading coming from many different quarters. You have to reach far back in history to duplicate this current environment. No, you don’t sell everything in a panic, but you try to be realistic while trimming where you can.

Bottom line: Anything is possible this week. The algos have successfully killed volatility, which is another reason the market is slowly melting up. However, let me be clear: There are flashing red warning signs. The stock market is playing a game of musical chairs and one day the music is going to stop.

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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 still in a strong uptrend that is unsustainable for the long term.

RSI: (S&P 500) @ 67.69 = SPX is still overbought. At 70 RSI, it will be extremely overbought.

MACD: Above Zero Line but equal to Signal Line = Neutral

Daily Intraday Volatility: 12.56 = Extremely Low (Bearish). Does anyone know where Volatility has gone? (You can hide but not forever).

Comment: The Middle East problems still remain, although war has been averted for now. Amid all of this turmoil, the market keeps climbing higher, and once again, we are extremely overbought.

No one can say how high the market indexes will go, but the signs of euphoria are everywhere. Even my risk adverse neighbors are panic buying, afraid they are going to miss out on the next leg higher. Apparently, the talking heads on TV are saying the market will go nowhere but up.

This reminds me of 1999. Back then, nearly everyone also thought the markets would go up indefinitely. Traders and investors plowed everything into the market, and it was very profitable, until it wasn’t.

I hate to be a party pooper but this is the time to be cautious, not euphoric. It doesn’t mean to sell everything but it does mean to lighten up. Those who fail to heed the topping signs will not be able to get out in time. Unfortunately, no one knows when the music stops and the party ends. This particular party has gone on a lot longer than anyone imagined, so the end is drawing closer.

The best summary of current market conditions (i.e. a bubble) comes again from Sven Henrich (Northman Trader), who says it a lot better than me and with the data to back it up. He also attached a video, which I recommend watching. Here is the link to his thoughtful analysis of the bubble: https://bit.ly/2sf9X4K

Bottom line: Although it’s tempting to panic buy into this market, disciplined traders are looking to sell, not buy. It’s always been a mistake throughout history to buy at or near a top, even if you do miss out on a few percentage point gains. Is this really “the” top? We won’t know until it’s over but the warning signs keep getting louder.

_____________________________________________________________

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 still in a strong uptrend but Middle East problems could be a threat.

RSI: (S&P 500) @ 65.74 = SPX is still overbought, but not as much as last week.

MACD: Above Zero Line and above Signal Line = Bullish

Daily Intraday Volatility: 14.02 = Low (Bearish)

Comment: As I’ve warned for weeks, overbought markets cannot remain overbought indefinitely. At the moment, the Middle East could be the catalyst that causes a series of pullbacks. This week could determine market direction for weeks or months to come.

When RSI hit 78 last week, it was a flashing red warning sign that the market was due for a reversal, and on Friday we had one. The futures are lower on Sunday night but it is too early to say if that will continue into the market open.

As I and others have warned, it is still a good time to sell big winners as well as losers. It doesn’t mean sell everything in a panic, but to increase cash levels. Obviously, the world is a lot more dangerous now than it was last week, so be prepared for volatile conditions moving forward.

One of the best summaries I’ve seen of the current market and what goes on behind the scenes comes from Sven Henrich (Northman Trader). He talks about how Wall Street is always programmed to buy, and never to sell. I highly recommend it: https://bit.ly/2QPtWzb

Bottom line: It’s been years since we’ve had a bear market. There is no evidence we are headed towards one now but with an overbought market and a dangerous geopolitical environment, the odds have increased substantially.

_____________________________________________________________

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 that appears unstoppable, but also unsustainable for the long term.

RSI: (S&P 500) @ 78.43 = SPX is extremely overbought. Caution is advised.

MACD: Above Zero Line and above Signal Line = Bullish

Daily Intraday Volatility: 13.43 = Low (Bearish)

Comment: It’s another shortened week so volume should be light early in the week but should pick up later in the week after we greet the New Year. The first week of January should be interesting, however, so pay close attention.

When you look at the indicators above, it’s hard to believe. RSI is the highest it’s been in many years at 78.43 (over 70. is overbought). The indicators are telling us the markets are extremely overbought. Could the indexes keep moving higher? Yes, they can, and many people believe they will. Some have even said the dreaded words, “This time it’s different.”

Unfortunately, this game of musical chairs is going to stop one day and anyone still holding the bag is going to be shocked. This is similar to 1999, a year when nothing could go wrong as we ushered in 2000, and then everything went wrong. It doesn’t mean we will follow the same scenario, but extremely overbought markets like this always come to an end eventually.

The Fed has fueled the rise in the indexes with low interest rates and QE , and unfortunately, to keep the bubble from popping, more and more QE is needed. Does it mean you should run out and sell everything? No, but it wouldn’t hurt to sell some of those huge winners along with any losers. After all, the game the Fed is playing could continue a while longer, longer than anyone expects, until the day of reckoning arrives. When that day is, no one knows.

Meanwhile, here are three articles that go into much more detail of how overbought this market has become, and what to do about it. It’s scary reading, so be prepared:

Sven Henrich (Northman Trader) on Apple and the similarities to 1999: https://bit.ly/2ZEr7VJ

Lance Roberts on the Market Meltup: https://bit.ly/2Q6iU9C

Sven Henrich(Northman Trader) on Microsoft: https://bit.ly/37lGB3M

Meanwhile, have a great New Year and stay safe. 2020 is guaranteed to be a fascinating year and in my opinion, it will be one for the history books.

_____________________________________________________________

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