The Weekly Trader

MY TWO NEW BOOKS: My two newest stock market books will be released on May 24th. Here is the link to Understanding Stocks (3rd edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  — I discuss how to manage corrections and bear markets — and examine the most important indicators and oscillators. 

Until my limited supplies last, I am offering a signed copy of my book for $24 (list price) plus $3 shipping (in the U.S.). Email me if you want a copy of one or both books. 

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – LOWER. SPX retreated for the fifth week in a row, from 4271 to 4131, an excruciating 140-point pullback. Once again, the Dow fell by nearly 1000 points on Friday (this was the second 1000-point Friday selloff in a row). The SPX daily chart is horrendous as SPX is below all three moving averages. Futures are SLIGHTLY HIGHER on Monday morning.

Long-term trend (WEEKLY CHART) – LOWER. SPX has fallen below its 50-week MA on the longer-term weekly chart (a red flag), and is now threatening to drop below its 100-week average. From a technical side, it’s not looking good (if long).

MACD (WEEKLY) = LOWER . The WEEKLY MACD has fallen below the zero line and the 9-day signal line. Not good for the bulls. 

RSI: (S&P 500) @34.98 (DAILY) OVERSOLD.  If there is any bit of good news, it’s with RSI, which is oversold and close to extreme oversold conditions (below 30). If we drop below 30 on the daily RSI, expect a monster snapback rally in the near future.

Daily Intraday Volatility (VIX) = 33.40 = HIGHER: We went from “What me, worry?” to “The Sky is Falling” in a month. The VIX is reflecting the fear and anxiety option traders are feeling as they gobble up puts to protect long positions.

Comment: It was another awful week for the major indexes as well as individual stocks. Netflix continues to fall after a mind-boggling 36 percent gap-down selloff, and the great company, Amazon, took a 15 percent beating last week. Even Apple took a hit. The charts on all of the FAANG stocks are dreadful — all below their moving averages on the daily chart.

Many investors are not used to this kind of price action as most selloffs in the past have rebounded fairly quickly. Perhaps that is why so many people are holding on for dear life (HODL), and refuse to sell. That strategy makes sense if you a very long-term investor, if you know what you own, and you are diversified.

On the other hand, if you can’t take the pain (it could last several months to a year), or you are holding a losing stock, you will be in for a rough time in the short term.

This is the time to evaluate what you own, determine how much risk you are willing to take, decide on whether you are a long-term investor or a short-term trader. If you are a long-term investor and you own a solid stock, then buy and hold should work. However, as I write in my books above, a better strategy is Buy and Hold Until Something Changes.

The person who actually helped create that strategy is Lance Roberts from realinvestmentadvice.com. FYI: Here is a link to his latest commentary, which is another excellent read: https://bit.ly/3LElu1c

Lance had warned investors months ago that the market was getting more dangerous, and he was right. In the blog commentary (above), he warns that a recession is likely.

A bear market has not officially been declared, and even if it was, not many want to talk about it. The best advice is the same advice I have given in the past including diversifying into cash (not in a lump-sum panic but scaling in), and dollar cost averaging into stock or index funds.

If we do enter a bear market and/or a recession, there will be many opportunities to buy some of your favorite stocks at much, much lower prices. Unfortunately, no one can time the bottom but we can get clues from watching the indicators and oscillators.

Right now, as long as SPX and the other indexes are below their moving averages, going long in the short-term is fraught with danger. However, the market is so oversold, a massive rally is likely. This is important: During a bear market, strong rallies are common. Typically, they don’t last longer than a day.

Bottom line: The market is entering dangerous waters. This is not the time to run and hide but to evaluate what you own. It’s been 13 years since we had a market this dangerous, so be prepared emotionally for a rocky market environment.

MY TWO NEW BOOKS: My two newest stock market books will be released on May 24th. Here is the link to Understanding Stocks (3rd edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy  — I discuss how to manage corrections and bear markets — and examine the most important indicators and oscillators.

For a limited time, I am offering a signed copy of my books for $24 (list price) plus $3 shipping (in the U.S.). Email me if you want a copy of one or both books.

WHAT THE TECHNICAL INDICATORS ARE TELLING US THIS WEEK

Short-term trend (DAILY CHART) – LOWER. SPX retreated for the fourth week in a row, this time from 4392 to 4271, a painful 121-point pullback. Friday was especially harsh as the Dow fell by nearly 1000 points (the biggest daily loss since 2020). The SPX daily chart is downright ugly as SPX plunged below its 50-, 100-, and 200-day moving averages. Futures are lower on Sunday night, but that could change in the morning.

Long-term trend (WEEKLY CHART) – LOWER. Those with a longer-term perspective may seek some solace in the weekly chart. On the weekly, SPX remains below its 50-day moving average (a red flag), but has not dropped below its 100- or 200-day. The bulls still have a chance to recover this week, but it may be volatile over the short term.

MACD (WEEKLY) = LOWER TO FLAT. The WEEKLY MACD has fallen slightly below the zero line and the 9-day signal line. Not pretty.

RSI: (S&P 500) @44.53 (DAILY) OVERSOLD.  RSI on the DAILY chart is oversold but not at extreme levels (below 30). If the indexes keep falling, expect a snapback rally at some point (but no one knows when).

Daily Intraday Volatility (VIX) = 28.21 = HIGHER: Option traders woke up to a selloff on Friday and bought loads of put options. The pop in the VIX reflects that a touch of fear has entered into the hearts and minds of option traders.

Comment: For the fourth week in a row, the indexes have fallen. Although there was a one-day wonder rally during the week, the bulls could not hold their gains. Even more ominous, the indexes rallied in the morning on some days, but reversed direction by the end of the day. Failed rallies are a negative sign.

It is too early to say where the market is headed but it is safe to say we are entering treacherous waters. Many experts believe the spike in interest rates (over 5 percent) helped to punish the bulls, and maybe the experts are right. It’s not helping that the Fed is hinting that interest rates may move much, much higher next month (i.e., 50 to 75 basis points). 75 basis points?

Perhaps Fed Chairman Powell is just “jawboning,” because a 75 basis point increase would shock the financial markets. (Maybe next month Powell will change his mind (“I was just kidding!”) Then there should be a relief rally.

It didn’t help market sentiment when Netflix fell by over 36 percent in one day. Less than a year ago, Netflix was trading at $700 per share. Now it’s at $215. That hurts.

After a one-month pullback, expect to hear a lot of complaints and concerns from investors. No one is panicking yet because they “expect” the market to rally back. All we can do is watch, wait, and observe the technical indicators and other clues. The indicators are telling us that it’s been an ugly month but there is still a chance for the bulls to win back the week.

Bottom line: Unfortunately, the easy days are over for now. You will have to work for your money if you are in this market.

TWO NEW BOOKS COMING: On May 24th, 2022, my two newest stock market books will be released. Here is the link to Understanding Stocks (3rd edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy . Both are excellent books. 

WHAT THE INDICATORS ARE SAYING 

This is what the technical indicators are telling us this week

Short-term trend (DAILY CHART) – LOWER. SPX retreated for the second week in a row, from 4488 to 4392, a 96-point pullback. The “Death Cross” is still displayed on the daily chart (when the 50-day crosses below the 200-day). Even more ominous, SPX is below its 50-, 100-, and 200-day moving averages on the daily chart. Futures are lower on Sunday night, but that could change in the morning.

Long-term trend (WEEKLY CHART) – FLAT. On the weekly chart, SPX is below its 50-day moving average, which is a red flag. On the longer-term weekly chart, SPX is still above its 100- and 200-day, which is a positive. We are watching these important support levels closely.

MACD (WEEKLY) = FLAT. The WEEKLY MACD is still flat with no clue as to which direction it will go next.

RSI: (S&P 500) @44.53 (DAILY) SLIGHTLY OVERSOLD.  RSI on the DAILY chart is slightly oversold but not at extreme levels.

Daily Intraday Volatility (VIX) = 22.70 = NEUTRAL: Option traders remain calm, as reflected in a low VIX.

Comment: The biggest financial news last week was that mortgage interest rates for Freddie Mac surpassed 5 percent. That should gradually slow down the housing market. Also, as many people know, inflation has risen sharply, especially food and gas. Only a few months ago, the Fed claimed that inflation was “under control.” That talking point is no longer valid.

The war in Ukraine is causing economic disruptions (and a humanitarian disaster), and it could get worse. Although the stock market is trying to ignore the bad news, it’s not working in the short term.

This week is leaning bearish because of all of the bad news swirling around, but the bulls could still take back control. In the short term, it’s not a pretty picture. The longer-term weekly chart tells us that the market has retreated temporarily although it could recover this week.

Watch to see if SPX can take back its 50-day MA on the weekly chart. If it can do that, then the bulls can win the week. If SPX cannot recapture its 50-day this week, it could get a lot uglier. Be prepared for any scenario.

TWO NEW BOOKS COMING: On May 24th, 2022, my two newest stock market books will be released. Here is the link to Understanding Stocks (3rd edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy . Both are excellent books. 

WHAT THE INDICATORS ARE SAYING 

This is what the technical indicators are telling us this week

Short-term trend (DAILY CHART) – LOWER. SPX fell back last week, retreating from 4545 to 4488, a 57-point pullback. SPX is slightly above its 50-day moving average on the daily chart, which is a positive in the short term. FUTURES are slightly lower on Sunday night, but that could change in the morning. 

NOTE: On the daily chart, the 50-day MA has crossed below the 200-day, another name for the Death Cross. So far this has not been significant, but we are watching it closely.

Long-term trend (WEEKLY CHART) – HIGHER. On the weekly chart, SPX remains above its moving averages. This longer-term chart is telling us SPX is still consolidating with no clue as to its future direction.

MACD (WEEKLY) = FLAT. The WEEKLY MACD is still “walking” the line (the zero line) with no hint as to which direction it plans to go.

RSI: (S&P 500) @51.45 (DAILY) NEUTRAL.  RSI on the DAILY chart is neutral after the selloff last week. SPX is neither overbought or oversold.

Daily Intraday Volatility (VIX) = 21.26 = NEUTRAL: Option traders are calm, as reflected in the low VIX. Fear has taken a holiday for now.

Comment: I wish I had more insights but the markets are calm and volatility is on the low side. Although SPX and the other indexes fell last week, it went from slightly overbought to neutral. At this time, the indicators are not giving strong signals in either direction.

This could be the calm before the storm, or it could just be calm. There is a lot of negative news swirling about, especially inflation and rising interest rates, but the market’s attitude is “What me, worry?” That’s a negative.

On the other hand, the indexes are generally ignoring the bad news. That’s a positive.

Bottom line: Stay the course. Traders will be hard-pressed to find many trading opportunities, at least until volatility returns.

TWO NEW BOOKS COMING: On May 24th, 2022, my two newest stock market books will be released. Here is the link to Understanding Stocks (3rd edition): https://amzn.to/3wO761F . Here is the link to How to Profit in the Stock Markethttps://amzn.to/35lnjQy . Both are excellent books.

WHAT THE INDICATORS ARE SAYING 

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

Short-term trend (DAILY CHART) – FLAT. SPX was as flat as a pancake last week, moving from 4543 to 4545. In the trading world, that is consolidation. On the daily chart, the short-term sell-off was stalled as the market catches its breath. On the daily, SPX is above its 50-day moving average, which is positive. FUTURES are flat to lower on Sunday night, but that could change in the morning.

NOTE: On the daily chart, the 50-day crossed below the 200-day, another name for the Death Cross. There are pros and cons to this lagging indicator, which will be explored in a future column. 

Long-term trend (WEEKLY CHART) – HIGHER. On the weekly chart, SPX remains above its moving averages. The longer-term weekly chart gives us a broader view of the market (50-week, 100-week, 200-week, etc.). While the short-term chart is volatile, the long-term view is positive.

MACD (WEEKLY) = FLAT: The WEEKLY MACD has stopped retreating and is stalled at the zero line. It could go in either direction but the worst may be over (for now). 

RSI: (S&P 500) @57.27 (DAILY) SLIGHTLY OVERBOUGHT. RSI on the DAILY chart is pointing to a short-term overbought condition but it’s not at extreme levels. 

Daily Intraday Volatility (VIX) = 19.63= NEUTRAL: Calm has returned to the options market as option speculators have stopped gobbling up put options for protection. As a result, the VIX continues moving to more “normal” volatility levels. Result: The nervousness of a few weeks ago has been forgotten.

Comment: SPX appears to be consolidating in the short-term, while still pointing higher in the long term. Market participants are being lulled into a feeling that “everything is okay.” Until there is evidence of a reversal, most investors are going to stay the course.

Last week could have been a whole lot worse but “window dressing” saved the day. Window dressing refers to the last few days of the month when fund managers dump their losers and buy winners. As a result, certain stocks go to the moon during the end of the month while losers are severely punished.

It is unclear which direction the market will go this week. After a two-week rally followed by consolidation, the market could go in either direction. Bad news is swirling around including higher interest rates, inflation, higher gas prices, and a war. Even though Friday’s job numbers were fantastic, inflation is making many people feel broke. It’s a very mixed bag.

Bottom line: No one can predict which direction the market will go this week, and I won’t even try. It’s a very tricky trading environment, and anything is possible. If trading, be extra careful as it’s easy to get whip-sawed.