The Weekly Trader

Each weekend, I analyze market conditions using sentiment and technical indicators. The goal is todetermine 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

 

AAII survey (1/15/2014)

39.0% Bullish. 21.5% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investor’s Intelligence (1/15/2014)

56.1% Bullish. 15.3% Bearish.

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% 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: 12.44

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 slightly.

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

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

 

MACD: MACD is above the zero line, and slightly lower than 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 56.49 (on 1/17/2014)

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 2.83% (on 1/17/2014)

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

 

Analysis: The rollercoaster week reduced some of the bullish market sentiment, but it’s still on the frothy side. Even more interesting, few investors are expecting a bear market. In fact, there is a level of complacency in the market (look at the low VIX for evidence) that is remarkable. On the technical side, the S&P stalled last week, as reflected in moving averages and MACD. Once again, we enter the week with mixed signals.

Opinion: One of the most important tasks of a trader is to identify when one trend ends and another begins. After a lengthy bull market (five years and counting), it’s essential to look for signs that the bull market might be in trouble. Failing to do so can cost you money.

Rather than trying to predict what the market will do next, it’s more important to observe the market, and look for danger signs.

One way of determining whether the market is about to roll over is by testing your positions. Rather than stepping into a confused market with a handful of buy (or sell) orders, start by probing the market to see which way the financial winds are blowing. For example, you could buy 100 shares or more of a stock or index (or sell short 100 shares or more depending on the size of your account). If you are right, then you will own a profitable position. If wrong, cut your losses at 7 or 8 percent. Rule: Add to profitable positions but never add to unprofitable positions.

I believe that the market is struggling and is about to turn over. In my opinion, the first hit will come from emerging markets (EEM, the emerging market index, recently fell below its 200-day MA), which will spread to the U.S. I have no idea when this may occur or how long it will last. I also don’t know if I’m right. To test my opinion, I will probe the market (something I learned from Jesse Livermore).

Obviously, if the market does take a hit, the Fed may come to the rescue by announcing that they have stopped tapering until further notice. The markets will rally on that news. Because of the Fed, the market has become much more unpredictable. It’s essential, however, that you not get trapped on one side or the other, and remain objective. (I’m leaning bearish but I’ll change my mind if the market proves me wrong.)

Bottom line: I believe that investors will have to work for their money this year, unlike in 2013, which was a cakewalk. Astute investors must be alert, and in my opinion, be properly diversified or on the sidelines ready to pounce.

 

* 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 (1/8/2014)

43.6% Bullish. 25.0% Bearish.

Bearish: If sentiment is over 50% bullish.

Bullish: If sentiment is over 50% bearish.

 

Investor’s Intelligence (1/8/2014)

60.6% Bullish. 15.2% Bearish.

Bearish: If sentiment is over 60% bullish.

Bullish: If sentiment is over 60% 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: 12.14

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 up slightly.

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, and even with 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 64.03 (on 1/10/2014)

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 2.86% (on 1/10/2014)

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

 

Analysis: As you can see, sentiment indicators are still a bit frothy but technical indicators are leaning bullish. Once again, the Fed will trump the indicators when they meet in two weeks. Until then, stay alert and cautious.

Opinion: The market continues to give mixed signals. Technical indicators, while still pointing up, are less bullish than a few weeks ago. At the risk of sounding like a broken record, this is the time tobe prudent while the market reveals its next move.

Before Friday, emerging markets and bonds were getting whacked (as expected), but the reverse occurred on Friday after the lackluster jobs numbers were released. After all, poor economic news means no tapering, which is good for emerging markets and bonds.

Put January 28th on your calendar as Janet Yellen takes over the Fed. Plan for two weeks of “taper or no taper” guessing games. I don’t ever remember a time when the market was so dependent on the words of the Fed. Is it going to be this way forever? I hope not. One thing for sure: If the Fed makes a mistake in how it handles the unwinding of QE, there will be hell to pay.

Bottom line: Be cautious as the market could go in either direction this week.

 

* 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 (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.