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 but trouble ahead = Neutral to Bullish

One-month trend: Trend still strong until further notice. This is a pivotal week.

RSI: (S&P 500) @ 65.87= overbought

MACD: Above Zero Line and Signal Line above MACD line = Bullish

Daily Intraday Volatility: 13.68 = Bearish

Comment: Futures are lower Monday night due to Apple’s warning (it won’t meet quarterly revenue target due to Coronavirus). Add in an overbought market as well as recessionary fears from Asia due to the virus, and you have the potential for a severe pullback.

The Chinese central bank and the Fed will do everything in their power to keep investors calm. If things take a turn for the worse, the Fed will lower interest rates, flood the market with more QE money, or do whatever it takes to reduce fears. It’s going to be quite a battle this week and in the near future.

The black swan that no one expected was the virus, and it’s unknown how much more damage it will cause. Investors are still in denial because of their full faith in the Fed’s ability to reverse any plunges. For 11 years, the Fed has been able to perform miracles, but at a price: The market is extremely overbought by almost every technical and fundamental indicator.

Whether the market goes up or down this week, one thing I am certain of: The easy days are over. Expect a lot of gyrations moving forward, of short-term rallies followed by short-term plunges. As I’ve written before, this is one of the most dangerous markets I’ve ever seen. It’s like an old, beat up car driving up a hill at full speed as pieces of the car keep falling off. Eventually, the car runs out of gas or falls apart. The warning from Apple, the most popular stock in America, is not a good omen.

Added to all these other problems, I am also seeing signs of a recession slowly creeping towards us. Obviously, the fallout from the virus have accelerated those fears. And yet, with all this bad news, the Fed might be able to pull a rabbit out of the hat and convince investors to “not sell.”

The analysts I follow, Lance Roberts, Sven Henrich, and Wolf Richter, have posted excellent pieces over the weekend. Here are links to a few of the best. In addition, read Bloomberg for the latest on the virus as well as Apple’s warning.

I recommend that you read the following pieces:

Sven Henrich (Northman Trader) on Apple risks: https://bit.ly/2uTvzFg

Sven Henrich (Northman Trader) on the market bubble: https://bit.ly/2UWHpJn

Lance Roberts (realinvestmentadvice) on how the market thinks it’s immune to risks: https://bit.ly/37w3BN2

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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


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

Short-term: S&P 500 is above its 50-day MA but could be forming a double-top: Neutral

One-month trend: After a brief pullback, SPX is trying to recapture its uptrend. It’s too early to say if it will be successful.

RSI: (S&P 500) @ 59.59= neutral

MACD: Above Zero Line but Signal Line is even with MACD line = Neutral

Daily Intraday Volatility: 15.47 = Neutral to Bearish.

Comment: Last week, we went from the edge of the abyss to a four-day rally that miraculously saved the indexes. The market was set to fall below its 50-day moving average last Monday when the bulls arrived in full force. Unfortunately, although the market looked bullish on the outside, underneath the surface it was not that pretty. Only a handful of stocks kept the indexes from falling, but the public doesn’t care. As long as the Dow is climbing, all is good.

Nevertheless, there are some disturbing signs that all is not normal. Obviously, we are watching the virus to see if it spreads farther and faster. The reality is that it is already causing financial pain in China, along with the human toll. It’s too early to say this is a “black swan,” but it does need to be watched closely.

The market has moved up too far and too fast in the last month or two, so caution is advised. A short-term double top formed in the SPX, which is a negative sign. However, it’s also possible the market could blast past resistance and move even higher (negating the double top). No one knows what is going to happen, but volatility has arrived, which is a double-edged sword.

Sign of a top? I have a neighbor who has been bearish on the market for the last 10 years. He hid out in cash and bonds. He told me yesterday that a month ago, he threw in the towel and put 50% of his money into the stock market. When the most adamant bears turn bullish, that is often a warning that a top is near. Not guaranteed but something to think about.

For a more detailed analysis of the current market environment, I once again turn to Lance Roberts and Sven Henrich, who wrote excellent pieces about the current market:

Sven Henrich (Northman Trader): https://bit.ly/38pAwUA

Lance Roberts (realinvestmentadvice): https://bit.ly/2OFZMy5

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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


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

Short-term: S&P 500 is at its 50-day MA and pointing down = Neutral to Bearish

One-month trend: The uptrend in SPX has been broken and should be watched closely. It’s too early to know which direction the indexes will go this week.

RSI: (S&P 500) @ 43.44= RSI plunged from a high of 76.56 two weeks ago to 43.44, a neutral reading.

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

Daily Intraday Volatility: 18.84 = Neutral

Comment: What a difference a week makes! A week ago, analysts were leapfrogging over each other, making bigger and bolder predictions of an unstoppable bull market (SPX 4000 and beyond, some predicted). And just like that, like a 2 x 4 in the face, investors got smacked. And now, some of those same analysts are backtracking, warning of a 10 percent correction or worse.

At this time, it’s unknown if the recent selloff is meaningful or a run-of-the mill, short-lived pullback. From my perspective, there are a lot of red flashing warning signs, but I’ve seen those signs for months, if not longer. At the same time, I’ve seen vicious pullbacks followed by rip-roaring rallies (such as in January 2018).

Therefore, it’s best to keep your wits about you and plan for any scenario. SPX is at its 50-day moving average, and it could go in either direction. If it falls below its 100-day moving average, be prepared to ride it out (or trade it if you have the skills). Eventually, the panic subsides and a rally emerges.

However, there is always the possibility we are entering a real bear market, but it’s too early to say (keep your eye on the 200-day moving average). It’s been over 10 years since the last bear market, so it wouldn’t be that surprising if one appeared. Nevertheless, there have been so many plunges and rallies in the last 10 years, no one can predict what will happen. Just be diversified, as I’ve repeatedly warned.

Bottom line: Don’t succumb to the fear if the markets plunge this week, and don’t let down your guard if they rally back to overbought levels.

Sunday Night: The Chinese stock market opened down by 9 percent at 8:30 pm.. ET, while the S&P futures are up strongly. Welcome to volatility, and there should be a lot of it this week as the world’s central banks take unprecedented steps to control stock market selloffs. (Maybe someone should forbid short selling this week. Oh, wait).

Once again, Lance Roberts and Sven Henrich wrote excellent pieces about the current market:

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

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

_____________________________________________________________

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


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

_____________________________________________________________

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.

_____________________________________________________________

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