The Weekly Trader

Each weekend, I analyze market conditions using sentiment and technical indicators. The goal is to determine if we are in a bullish, bearish, or sideways market environment. *

JUST RELEASED: Understanding Options (McGraw-Hill, 2E) and Understanding Stocks (McGraw-Hill, 2E): http://bit.ly/1bl0ZNk

My latest MarketWatch article (January): http://on.mktw.net/1bEjAEc

 

AAII survey (1/1/2014)

43.1% Bullish. 29.3% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investor’s Intelligence (1/1/2014)

61.6% Bullish. 15.2% Bearish.

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

CBOE Equity Put/Call Ratio: .56

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 13.76

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 is above its 50-day moving average, its 100-day and 200-day MA, and pointing down.

Bearish: Index crosses below 50-, 100-, or 200-day MA.

Bullish: Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD: MACD is above the zero line, above its red 9-day signal line, and pointing down (slightly). (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above 9-day signal line. MACD line crosses above zero line.

 

RSI: RSI is at 60.53 (on 1/3/2014)

Overbought: When RSI rises to 70 or above.

Oversold: When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Bonds: U.S. 10-year yield is at 3.00% (on 1/3/2014)

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).

 

Analysis: Sentiment is still on the high side, but not extreme. Technical indicators, although bullish, are giving mixed signals. This is the time to sit back and let the market lead the way.

Opinion: As I’ve said for several months, emerging markets are struggling, as are bonds. As you know, the yield on the 10 year is at 3 percent and will likely go higher. This will put pressure on emerging markets as well as bonds. If you still own bond mutual funds, this might be the time to reduce your holdings. Interest rates will continue to rise.

Even with all the problems in the world, the majority of money managers and most connected to Wall Street believe the U.S. bull market will continue. In fact, the theory is that as the rest of the world struggles, and bond investors flee, they will go to stocks. It’s a good theory and billions ofdollars are riding on this idea.

Nevertheless, even though Wall Street always has an upside bias, the contrarian in me is suspicious when too many people are leaning to only one side. Even long time bears have thrown in the towel, and are reluctantly going long. I know from experience that the market always finds a way of fooling the most amount of people. Let’s see if it can do so again.

Also, just because last year was easy doesn’t mean this year will be. In hindsight, all you had to do was stick your money in an index fund or any equity mutual fund and you would have done well. With all the problems brewing in the world, do you really think it will be as easy this year? In my opinion, investors will have to work for their gains. Nevertheless, I will let the market do the talking, so let’s see what it has in store for us this week. (As you may know, Asia is getting hit tonight.)

Bottom line: Sit back and wait for the market to reveal its hand. The market is leaning to the upside but there are many danger signs.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I analyze market conditions using sentiment and technical indicators. The goal is to determine if we are in a bullish, bearish, or sideways market environment. *

JUST RELEASED: Understanding Options (McGraw-Hill, 2E) and Understanding Stocks (McGraw-Hill, 2E): http://bit.ly/1bl0ZNk

My latest MarketWatch article (January): http://on.mktw.net/1bEjAEc

 

AAII survey (12/25/2013)

55.1% Bullish. 18.5% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investor’s Intelligence (12/24/2013)

59.6% Bullish. 14.1% Bearish.

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% bearish.

 

CBOE Equity Put/Call Ratio: .54

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 12.46

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 (and Dow) is above its 50-day moving average, its 100-day and 200-day MA, and pointing up.

Bearish: Index crosses below 50-, 100-, or 200-day MA.

Bullish: Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD: MACD is above the zero line, above its red 9-day signal line, and pointing up. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above 9-day signal line. MACD line crosses above zero line.

 

RSI: RSI is at 69.30 (on 12/27/2013)

Overbought: When RSI rises to 70 or above.

Oversold: When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Bonds: U.S. 10-year yield is at 3.01% (on 12/27/2013)

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).

 

Analysis and Opinion: (On Vacation): I will give my analysis and opinion beginning on January 5th. Have a Happy New Year. 

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I analyze market conditions using sentiment and technical indicators. The goal is to determine if we are in a bullish, bearish, or sideways market environment. *

I have two new (2nd Edition) books that are available now on Amazon and Barnes and Noble: Understanding Options (McGraw-Hill, 2E): and Understanding Stocks (McGraw-Hill, 2E). Click here for the links: http://bit.ly/1bl0ZNk I think you will be very pleased with how they turned out. I’m especially pleased with the options book, which was completely rewritten.

I write a monthly column for MarketWatch. Here is my latest (November): http://on.mktw.net/1epjUhL

 

AAII survey (12/18/2013)

47.5% Bullish. 25.1% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investor’s Intelligence (12/18/2013)

58.2% Bullish. 14.3% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

CBOE Equity Put/Call Ratio: .50

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 13.79

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 (and Dow) is above its 50-day moving average, its 100-day and 200-day MA, and pointing up.

Bearish: Index crosses below 50-, 100-, or 200-day MA.

Bullish: Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD: MACD is above the zero line, but is below its red 9-day signal line but pointing up. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above 9-day signal line. MACD line crosses above zero line.

 

RSI: RSI is at 62.83 (on 12/20/2013)

Overbought: When RSI rises to 70 or above.

Oversold: When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Bonds: U.S. 10-year yield is at 2.89% (on 12/20/2013)

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).

 

Analysis: Financial writers are still bullish, and even individual investors are starting to believe the market has nowhere to go but up. It’s not a mania yet but it might be if the market keeps climbing into 2014. Indicators are pointing up but sentiment is telling us the market is getting frothy.

Opinion: This will be a shortened week so I will keep it short. Ben pulled off an amazing feat last week by finally tapering while telling the market that the Fed will continue to be accommodative (i.e., support the market). I’m sure he giggled at the way he shocked the market, but in a good way (most people, including me, thought that tapering would cause a negative reaction). But Ben thread the needle brilliantly, and on the basis of his soothing words, the market went 300 points higher.

I’m hearing a rumor that some of the biggest market players are expecting a 15 percent correction. In fact, a lot of people are expecting a correction. Meanwhile, Ma and Pa are dutifully adding more of their hard earned money into company 401ks and IRAs. I guess they didn’t get the message.

On the other hand, ignorance is bliss. Can the market go to 16,500 or 17,000? Certainly. But as the clock keeps ticking, as the market climbs primarily on the Fed’s future promises, the red flags increase. Right now, the Fed is running the whole show, and in my opinion, that is not healthy.

One day (which cannot be predicted), there will be a catalyst, an unknown event that will knock this market off its mighty perch. As I said last week, prudent investors are pulling back, similar to watching an approaching hurricane. We know it’s going to hit, but we don’t when or where.

There are a lot of dangerous crosscurrents between the bond market and stock market. When the 10-year yield surpasses 3 percent, it should be interesting how the stock market reacts. For years, savers have been punished, and in fact, almost forced into the stock market. As interest rates keep rising, that scenario will change.

Bottom line: We should know soon which way the financial winds are headed. In my opinion, a storm is approaching, but I have no idea when it will hit. Nevertheless, now might be a good time to put up those storm shutters. (Keep your eye on emerging markets as the canary in the coal mine.)

Have a great Christmas, happy holiday, and a wonderful New Year. Unless there is a market moving event, my next blog entry will be on January 6th, 2014.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I analyze market conditions using sentiment and technical indicators. The goal is to determine if we are in a bullish, bearish, or sideways market environment. *

I have two new (updated) books that are available now on Amazon and Barnes and Noble: Understanding Options (McGraw-Hill, 2nd Edition): and Understanding Stocks (McGraw-Hill, 2nd Edition). Click here for the links: http://bit.ly/1bl0ZNk

I also write a monthly column for MarketWatch. Here is my latest: http://on.mktw.net/1epjUhL

 

AAII survey (12/11/2013)

41.3% Bullish. 25.0% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investor’s Intelligence (12/11/2013)

58.2% Bullish. 14.3% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

CBOE Equity Put/Call Ratio: .67

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 15.76

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 (and Dow) is slightly above its 50-day moving average, and also above its 100-day and 200-day MA, and pointing down.

Bearish: Index crosses below 50-, 100-, or 200-day MA.

Bullish: Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD: MACD is above the zero line, but is below its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above 9-day signal line. MACD line crosses above zero line.

 

RSI: RSI is at 45.85 (on 12/13/2013)

Overbought: When RSI rises to 70 or above.

Oversold: When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Bonds: U.S. 10-year yield is at 2.86% (on 12/13/2013)

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).

 

Analysis: Financial newsletter writers and many on Wall Street are still bullish, as reflected in the Investors Intelligence survey results. The numbers would have been more extreme except it was a down week, so other sentiment numbers cooled slightly. Technical indicators took a slight turn for the worse, with MACD turning down. The S&P is barely holding on to its 50-day moving average. Once again, keep your eye on the 10-year yield, as the higher it goes, the lower bonds go. Meanwhile, all eyes are on the Fed, and their talking points will trump all indicators this week.

Opinion: As I warned last week, it was the time to be cautious, and it still is. Although the bears ruled the week, volume was so anemic that you can’t declare victory for either side. It doesn’t really matter because the Fed show is coming to a theatre near you (Wednesday is the big day), and that should take up all of the oxygen.

Judging by the sentiment numbers, most pros believe that the Fed will continue to make excuses why it is not the right time to taper. In fact, that should not come as a surprise. The only surprise would be if the Fed actually tapered, or said they are going to taper. Now that would shock the market, but not in a good way. (Note: I was wrong about that. Market shot up by almost 300 points!)

The odds are extremely high that nothing is going to happen at this meeting. It is unknown how the market will react, but after a down week, perhaps they will find something (anything) positive. With bond prices falling, with emerging markets faltering, with bubbles appearing in different places around the world, the Fed is not going to do anything to tip the market over.

And yet, the Fed has a huge dilemma. For their experimental strategy to work, interest rates must remain low. Unfortunately, bond yields are creeping up, which are a threat to QE. Maybe they can come up with a new program that will keep interest rates low and the stock market up. Any new ideas, anyone?

Watch the market reaction for clues. If the market sells off on the no tapering news, that would be a negative sign for the market. If the market rallies on the no tapering news, then people still believe in the Fed’s power, and the show will go on. On second thought, it’s the day after (Thursday) that will be interesting.

Bottom line: Because of so many cross currents, this should be a volatile week. Year end bonuses are being calculated, money managers are hoping for a Santa Claus rally, and no one wants to lose the gains from another fantastic year. But reality has a funny way of interrupting even the best laid plans. In my opinion, it’s still a dangerous market (even more so). I am keeping my eye on emerging markets (the odds are they will continue to fall), and the bond market (ditto).

Fed or no Fed, each week I see increased risk in the market. Obviously, financial news writers and most pros are reliably bullish, primarily because they know the Fed is watching their back. And this is the way it has been for years. Nevertheless, the clock is ticking. Although the market could still go up by obscene amounts, prudent investors are taking money off the table.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I analyze market conditions using sentiment and technical indicators. The goal is to determine if we are in a bullish, bearish, or sideways market environment. *

Breaking News: The 2nd edition of my bestselling book, Understanding Options (McGraw-Hill, 2nd Edition), and Understanding Stocks (McGraw-Hill, 2nd Edition), will be released in January. They have been completely rewritten. I believe you will be pleased with the new editions. Here are the links:

Understanding Options: http://amzn.to/I7bDjF

Understanding Stocks: http://amzn.to/1aXat0Z

 

AAII survey (12/4/2013)

42.6% Bullish. 27.5% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investor’s Intelligence (12/4/2013)

57.1% Bullish. 14.3% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

CBOE Equity Put/Call Ratio: .53

Bearish: Less than or near .50 is bearish (more call options are being bought).

Bullish: Higher than or near 1.0 is bullish (more put options are being bought)

 

VIX: 13.79

Bearish: Less than or near 12.

Bullish: Greater than or near 40.

 

Moving Averages (daily): S&P 500 (and Dow) is above its 50-day moving average, and above its 100-day and 200-day MA, and pointing up.

Bearish: Index crosses below 50-, 100-, or 200-day MA.

Bullish: Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD: MACD is above the zero line, but is below its red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Bearish: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Bullish: MACD line crosses above 9-day signal line. MACD line crosses above zero line.

 

RSI: RSI is at 61.55 (on 12/6/2013)

Overbought: When RSI rises to 70 or above.

Oversold: When RSI falls to 30 or below.

Note: RSI can remain overbought or oversold for extended time periods.

 

Bonds: U.S. 10-year yield is at 2.88% (on 12/6/2013)

Note: 3.0% or higher is significant (consider selling bond funds as yield rises). 3.5% or higher and risk increases (for bondholders).

 

Analysis: Independent financial writers are more bullish than last week, along with most money managers. Retail investors, however, lost a little of their enthusiasm as the market fell during the week. VIX is still in the complacent zone, and RSI has pulled back to neutral levels. Technical indicators are mixed, with no clear winner. If you follow technical indicators, you are cautiously bullish. On the other hand, Thomas DeMark, creator of a number of superb timing tools, says that his indicators are giving him a major sell signal.

Opinion: Although most pros are all in, and believe there will be a Santa Claus rally, prudent investors are scaling back. The week went south all week until Friday, when the market staged a 1 percent rally, erasing most of the week’s losses.

On the surface, the rally was impressive. Unfortunately, volume on the major indexes was weak, which was not a bullish sign.

The market is giving mixed signals. Many of the top pros in the business are bullish, and even a few long-time bears changed sides (because they gave up fighting the Fed’s easy money policies). The pros have a good point: fighting the Fed can be dangerous to your wealth, as the last five years have shown.

And yet, I’m watching the 10-year Treasury yield creep up towards 3 percent. As you remember, the higher the yield goes, the lower bond prices go. It will be fascinating to watch millions of dollars in bond mutual funds and bond ETF leave the market at once.

Here’s how I see the future: The odds are very good that bond prices will continue to fall. The odds are also good that emerging markets are going to keep struggling. The big unknown is what is going to happen to the U.S. stock market.

If the pros are right, the market will stage a year-end rally that could blow your socks off. Money managers will receive their year-end bonuses, Wall Street will celebrate, and overly cautious investors will miss out on another spectacular year: Right now, the Dow is up over 20 percent, the S&P is up over 25 percent, and Nasdaq is up nearly 35 percent.

And yet, the higher this market goes, the more the risks increase. If the Fed is truly in control, and tapering is off the table, Wall Street may get its wish. On the other hand, the rise in the yield, the overall complacency among investors, and the extreme bullishness among the pros makes me cautious.

Is it time to get completely out of the market? That is a decision only you can make according to your risk tolerance. The trend is still up but there are enough warning signs that should cause prudent investors to increase cash positions.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.