The Weekly Trader


Here are the most recent market indicators:

S&P 500 is below its 200-day moving average = Bearish 

S&P 500 one-month trend = Downtrend (with major pivots)

RSI: (S&P 500) @46.77= Neutral

Daily Intraday Volatility: Moderate to High 

Comment: In the first week of the year the Dow plunged by over 600 points, then rallied by over 700 points. What a way to start the New Year! There is no evidence the volatility will end anytime soon.

Even with encouraging words from the Fed, and even though they will likely stop raising interest rates, this alleged bear market should continue to wreak havoc on investor’s portfolios. Never forget that in a bear market, even the stocks of great companies (like several of the FAANG stocks) go down.

If you are a long-term investor and can take the pain, and believe the stock of your company will be stronger after the bear market is over, then you will grit your teeth and hold. I still recommend hedging with inverse ETFs, put options, or cash, but that is a decision only you can make. By the way, another hedge in a bear market is gold, which has suddenly come to life. Gold tends to do well in bear markets.

There is always the possibility this is not a bear market but only a correction, and in that case, the indexes will rise above their 50-, 100-, and 200-day moving averages. If that happens, then put away the bear strategies and power on. But the evidence seems clear from numerous sources that this is going to be a difficult, volatile year.

The futures are pointing higher on Sunday night, so let’s watch and see if the indexes can rally higher this week, and whether the rallies can last more than a day or two. If the rallies fail spectacularly, that is more evidence the bear is breathing down our necks. I will wait for the market to make up its mind before I commit heavily to one side or the other.

Note: According to my analysis, the S&P 500 is currently overbought, but it could become more overbought before reversing direction.

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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 well below its 200-day moving averages = Bearish 

S&P 500 one-month trend = Downtrend (with a major pivot)

RSI: (S&P 500) @38.99= Mildly Oversold = Bullish 

Daily Intraday Volatility: Moderate to High 

I’ll try and keep this short because of the shortened trading week.

First, as expected, the market bounced back strongly last week, although no one predicted a 1000 point Dow rally in one day. That was amazing. Because RSI had dropped as low as 19.29 on Monday, I was waiting for the monster rally, and the bulls got their wish, at least for a day.

Unfortunately, the rally only bought back 2 days of losses (Source: Lance Roberts), so the downtrend is alive and well with occasional pivots to the upside. In fact, it will be fascinating to watch this week to see if the market can rally higher. As I wrote in my MarketWatch article, watch the rallies, not the declines. If the rallies are weak, and then fail, that is a clue this is more than a correction but a bear market.

Investors are still too hopeful, especially those that own the FAANG stocks. Even though the companies might be excellent, the stocks can still go down much further, and that’s a lesson investors learn the hard way. (I remember in 2007 when everyone owned and loved Citicorp. Investors were in shock when it fell from the 50’s into single digits. Yes, many strong companies fall hard in bear markets).

Bottom line: Until proven otherwise (the indexes will have to rise above their 200-day moving averages), treat this current market as a bear market. Short or sell into rallies, and increase cash positions on rallies. Don’t forget that some of the strongest rallies occur within bear markets, so trade accordingly.

Have a great New Year!

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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 well below its 200-day moving averages = Bearish 

S&P 500 one-month trend = Downtrend

RSI: (S&P 500) @22.44= Extremely Oversold = Bullish 

Daily Intraday Volatility: Moderate to High 

Comments:  Because of the shortened week, this will be a bit shorter than usual. This week, I”m publishing a piece on MarketWatch, which I’ll post here in a few days.

The market rallied into the Fed meeting, as expected, but it did not take kindly to the Fed Chairman’s words or actions. I was thinking that if the market can’t handle a minuscule .25% raise in interest rates, then the problems must be deeper than anyone can imagine. In fact, they are.

That being said, because the market is so oversold (RSI at 22.67 is the lowest in a decade), and sentiment is so bearish, don’t be surprised to see a huge rally, perhaps (this week). Unfortunately, because this is a bear market, the rallies will eventually fail.

If you’re an investor, you should use the rallies to reduce risk by selling losing stocks and increasing cash positions. I’ve made many mistakes as a trader and as an investor, but I survived because I always had healthy cash positions. For me, cash is true diversification, and is also an insurance policy.

If you are a trader, then you should be familiar with hedges such as buying put options to offset long positions, or buying inverse ETFs.

I’ll have a lot more to say on this topic in my MarketWatch article. Have a great holiday!

______________________________________________________

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 one-month trend = Downtrend (major Pivot Point)

S&P 500 is below its 200-day moving averages = Bearish 

RSI: (S&P 500) @36.43 = Oversold = Bullish 

Daily Intraday Volatility: Moderate to High 

Comment:  Now you know what a bear market feels like! Judging by the chart and the action from last week, the market is in a downtrend. Sentiment is awful: Investors Intelligence has the most bearish readings in five years. Mutual fund outflows were the highest in years. Everywhere you turn, there is negativity. In addition, this is the worst December for the S&P since 1980. The investor chatrooms are overwhelmingly negative. Adding to the doom and gloom, the Fed seems to be indecisive and nervous.

Believe it or not, because sentiment is so negative, it would not surprise me to see a huge rally this week, so be prepared. RSI is also telling us the market is oversold (another reason a rally is likely). 

The Fed has a difficult balancing act at their meeting (Dec. 18 and 19th) this week. If they raise rates too high, the market will protest (as it is doing now). If they stop raising rates, people will wonder if the economy is worse than they are admitting. More than likely, the Fed will raise rates by a quarter point this week but signal they will ease next year. If all goes according to plan, the market will rally strongly on their comments.  (If the market doesn’t rally on the Fed’s comments, then the problems are more serious than anyone realizes, or the Fed has lost credibility. Either scenario is not good).

No matter what happens this week, you have to change with the market. It is not easy to trade a treacherous bear market. Unfortunately, we could be in the 2nd inning of a 9-inning game. That means we have a long way to fall, but it probably won’t happen in a few days or weeks (i.e. crash). The most difficult market environment is a long and slow downward trend with occasional rallies. It is not easy to trade, or invest. On the way down, investors remind themselves to hold even though the pain from losses become excruciating (believe me, I’ve been there). They correctly remind themselves that Warren Buffett holds in bull and bear markets. For traders, the increased volatility is a double-edged sword. On one hand, profits can be made on the way down but it’s extremely difficult. Millions of nervous investors threw in the towel and moved to cash last week to ride out the storm from the sidelines.

Bottom line: The easy days of a bull market uptrend are over, so be ready. You will have to decide if you are a long term investor, trader, or in cash.  (Some will manage all three simultaneously.)

 

 

 

______________________________________________________

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 one-month trend = Downtrend (with multiple Pivot Points)

S&P 500 is below its 200-day moving averages = Bearish 

RSI: (S&P 500) @39.32 = Near oversold = Moderately Bullish 

Daily Intraday Volatility: Moderate to High 

Comment: As expected, last week’s Monday rally was a short-term blow off top, and the market plunged for the rest of the week. The market fell so fast in the last two days that we’re nearly oversold. Because no one wants to see a major selloff two weeks before Christmas, prepare for an upcoming rally, at least for a few days. Soon, the Fed, the White House, and Wall Street will make positive comments. The Fed has a meeting on Dec. 18th and 19th, so it’s extremely likely they will say something positive to instill confidence. 

However, after the Fed makes positive comments, if the markets keep falling, then it’s much worse than anyone imagines. For now, the Fed is feeling pressured and perhaps is unnerved by recent market action. In addition, they probably know that earnings are not going to be as strong as expected. They’re in a real quandary: If they don’t raise rates, it would scare the market. If they raise rates too much, it could break the market. So they are going to have to talk a good game to avoid a major selloff. For investors’ sake, I hope they succeed.

Bottom line: The easy days of a slow, uptrending market are over for now as volatility has returned in full force. The algos were Wall Street’s friend on the way up, and they will be their opponent on the way down.

______________________________________________________

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