The Weekly Trader

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

One-month trend = Bullish. Last week, the indexes bounced off their 50-day moving average and rallied all week, closing at 3886, higher by 172 points, the best week since November. Futures are higher on Sunday night (but that could change at the open).

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 reversed direction and rallied strongly from the 50-day MA. The trend is up.

RSI: (S&P 500) @ 66.31 (WEEKLY) = Slightly overbought. RSI rose to 66, which is slightly overbought. Note: I switched from following the daily RSI to the weekly RSI, which gives a more reliable signal. At over 70, that will be a strong overbought signal. At over 70, it is a red warning flag, not a trigger. *Edited on February 10, 2020.

MACD (WEEKLY) = Neutral. MACD is above its zero line and even with its 9-day Signal Line. MACD gave the most accurate signal a week ago that the market was stronger than it appeared.

Daily Intraday Volatility (VIX): 20.87= VIX plunged back to the 20s as fear disappeared.

Comment: What a difference a week makes! After a severe plunge the week before, the market came roaring back with its best weekly return since November. Buying on the dip worked once again, and just in time.

Last week, the SPX was on the verge of falling below its 50-day moving average, the trend was broken, and it looked bleak. And just like that, the fear that had entered the market two weeks ago disappeared, and now all seems well. Many will blame the GME and AMC debacle on the selloff, but the manipulation goes deeper than that, at least according to analyst Wolf Richter, who wrote a brilliant piece on wolfstreet.com.

Richter explains how the markets have been manipulated, but this time, it blew up in the faces of some hedge funds, a kind of reverse manipulation. Here is the link to Richter’s piece, which shows how the market broke because of the “bull raid” on GMC and AMC: https://bit.ly/3aEvpCF

Also, here is a link to my latest MarketWatch column: https://on.mktw.net/39WHSCr

Back to the market indicators: After a dreadful week, the market came roaring back. Right now, all the indicators are positive except for RSI, which is showing a slightly overbought market. The shorts got creamed last week. However, let’s see how long this short-term rally lasts.

Bottom line: Don’t fight the weekly trend.

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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: https://wolfstreet.com

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

One-month trend = Bearish and broken. As you know, something went wrong last week, and it wasn’t just the market. GME and AMC caused the order flow “plumbing” to clog. Until it’s fixed, caution is highly recommended. The indexes fell hard last week, closing at 3714 on the SPX, lower by 127 points. Futures are lower on Sunday night (but reversed direction overnight and opened higher).

Mid-term (50- and 100-day MA) = Neutral. The S&P 500 plunged last week, falling 1-point below its 50-day MA but above its 100-day MA. That happened fast!

RSI: (S&P 500) @ 43.27 (Daily) = Oversold. RSI fell with the indexes. It needs to fall below 30 to become extremely oversold. *(made corrections)

MACD (Weekly) = Bullish. MACD is above its zero line and slightly above its 9-day Signal Line. Remember, this is a Weekly MACD.

Daily Intraday Volatility (VIX): 33.09= Suddenly, there is fear. VIX spiked from the low 20’s to the 30’s. Investors were reminded that the market can go down for longer than a day.

Comment: Last week’s market action was extremely unusual. First, when the Fed meets, the market tends to drift higher before and during the meeting. The fact that the market plunged last week while the Fed was meeting was a red flag.

As you know, GME spiked to obscene levels, severely damaging the accounts of several hedge funds (who had large short positions), and individual traders who took on too much risk (i.e. selling naked calls).

If you want a deeper analysis of what happened last week, I suggest you read this piece by ZeroHedge. It’s a little technical but tells how things went horribly wrong: https://bit.ly/3ahThMc (Lesson #1: Don’t sell naked options, and if you do, trade small.)

Back to the current market: The futures are somewhat lower on Sunday night. I assume that because of the selloff last week, a number of traders are going to “buy the dip.” This strategy has worked before when there was a selloff, and it might work again. Nevertheless, caution is advised. * Monday night note: Once again, buying the dip worked as the indexes rallied.

Bottom line: Something went wrong last week, but it’s too early to know exactly how this will play out. I’m sure there are many high level meetings at financial institutions right now. Last week could be an aberration that will quickly be forgotten, or in a worst-case scenario, it could lead to more problems, and a more volatile market. No one can predict what is going to happen this week, but it should be fascinating.

Note: I wrote an article for MarketWatch last week on the importance of testing in a simulated account before buying. This is excellent advice if you are a beginner, or if you need to test a strategy: https://on.mktw.net/3j5z5Rv

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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: https://wolfstreet.com

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

One-month trend = Uptrend. The indexes drifted higher last week, closing at 3841 on the SPX, higher by 73 points from a week ago. On Friday, the indexes dropped, disrupting a low-volume uptrend. Futures are slightly higher on Sunday night.

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA. 

RSI: (S&P 500) @ 65.00 (Daily) = Overbought. If RSI moves above 70, that is a strong overbought signal, so buyer beware. With the Fed in control this week, we could easily move into extreme overbought levels.

MACD (Weekly) = Bullish. MACD is above its zero line and above its 9-day Signal Line

Daily Intraday Volatility (VIX): 21.91= How low can we go? VIX is saying there is no fear.

Comment: Last week, a four-day week, the indexes drifted higher until Friday. With the Fed meeting this week, the odds are good the uptrend will continue early in the week.

On the other hand, the market is overbought, VIX is in the basement, and there is no fear. These are the ingredients for a severe plunge in the near future, although no one can predict when it will occur, or how bad it will get.

Professional traders smarter than me (i.e. Paul Singer) are warning of a major pullback, saying this is the “end game.” As you already know, most bearish predictions have not worked out very well. Nevertheless, it would not be a mistake to take money off the table, and trade or invest cautiously. That’s a decision only you can make.

Bottom line: Based on historical trends, the market typically moves higher right before and during the Fed meeting. I would not be surprised to see an uptrend early in the week. After that, the market will move depending on what the Fed says, or doesn’t say.

_______________________________________________________

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

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

One-month trend = Temporarily Broken. The indexes drifted lower last week, closing at 3768 on the SPX, (lower by 56 points from a week ago). On Sunday night, the futures are higher, but that could change in the morning. 

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA. 

RSI: (S&P 500) @ 57.06 (Daily) = Neutral. After last week’s pullback, RSI is back in neutral territory. Anyone who ignored the RSI signals last week did so at their own peril. When RSI hits 70 or higher, as it did a week ago, that’s a warning sign.

MACD (Weekly) = Bullish. MACD is above its zero line and above its 9-day Signal Line. When the weekly MACD falls, that will be a sell signal. We’re not there yet. Note: I switched from observing the daily to the weekly MACD. 

Daily Intraday Volatility (VIX): 24.34= VIX is still low, and telling us there is little or no fear. 

Comment: Last week, RSI warned us that a pullback was likely, and it didn’t disappoint. Although volatility was contained, the market drifted lower last week. It could have been a whole lot worse, but the algos came to the rescue. 

As you know, this is a four-day week, so anything is possible. We have a new administration, a virus that’s still out of control but with hope the vaccines will save the day. The nation is on edge but the stock market is oblivious. It has created a very strange financial environment. 

Four-day weeks are historically difficult. An increase in volatility is possible, even likely. With the market still at all-time highs and with a battered economy, be prepared for anything. There is reason to be hopeful for the future, but in the short-term, the country is going through hell. 

Meanwhile, the stock market is in a world of its own. That is why it’s impossible to predict what direction the market is headed this week. My advice is to wait for clues on Monday morning to see which way the wind is blowing. Then trade accordingly. 

Bottom line: It could be a tricky trading environment this week so be careful, and trade small until you can identify the trend (if you are a trend trader).

Lance Roberts wrote a thoughtful piece on how the market is vulnerable because “everyone is in the pool.”: https://bit.ly/3ircD4Z

_______________________________________________________

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

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

One-month trend = Bullish. The indexes continued to rise last week, closing at 3824 on the SPX, (higher by 68 points from a week ago). On Sunday night, the futures are drifting lower and lower, but that could reverse in the morning, or get much worse.

Mid-term (50- and 100-day MA) = Bullish. The S&P 500 is well above its 50- and 100-day MA. 

RSI: (S&P 500) @ 67.28 (Daily) = Overbought. RSI is in the danger zone at 70.27. This is a warning sign.

MACD (Weekly) = Bullish. MACD is above its zero line and above its 9-day Signal Line. Note: I switched from studying the daily to the weekly MACD.

Daily Intraday Volatility (VIX): 21.56 = VIX is still in the basement, and telling us there is no fear. 

Comment: SPX is on a roll, and rose another 68 SPX points against all odds. In fact, the indexes moved up so high and fast that even some bullish professionals are warning of a severe pullback. They are probably looking at indicators that are signally an extremely overbought market.

RSI, my personal favorite, hit 70 on Friday. The indexes have pulled back on Sunday night (in the futures market), which is not surprising considering all of the bad news swirling around.

Speaking of overbought, Bitcoin rose to $40,000 per coin, which attracted the attention of thousands of investors who are suddenly interested in bitcoin (again). It’s interesting that investors ignore stocks and other products such as bitcoin when it’s at low prices. But when it spikes higher, suddenly everyone is interested. A lesson I learned a long time ago: If a stock or other product such as bitcoin moves up too high and too fast, the risk of a reversal is extremely high.

With all of the negative political, economic, and virus news swirling around, it’s astounding the stock market is at these extreme levels. Do not be shocked if there is a sudden and violent plunge in the near future, maybe even this week or next. We haven’t had any pullbacks since last March, so we’re definitely due for a nasty surprise.

Bottom line: The market is overbought and dangerous according to the indicators. Be careful out there.

The following is an excellent piece by Lance Roberts, on how the market is overbought and over-extended: https://bit.ly/2Li9Q1O

_______________________________________________________

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