The Weekly Trader

WHAT THE INDICATORS ARE SAYING 

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

One-week trend = LOWER. Once again, SPX retreated, falling from 4418 to 4348, a 70-point pullback. The bears have been dominating the bulls since January. The uncertainty about Russia and Ukraine hasn’t helped. The futures are LOWER on Monday night (but that could change in the morning).

SPX 20-day (WEEKLY) = LOWER. SPX is still BELOW its 20-day moving average and now below its 50-day MA. And yet, when this happened in the past, a rally was not far behind. Although it looks bleak, an unexpected rally is always possible.

RSI: (S&P 500) @42.63 (WEEKLY) OVERSOLD. RSI is on the oversold side but not at extreme levels yet.

MACD (WEEKLY) = BEARISH: The weekly MACD is below the 9-day signal line and headed directly for the zero line. It’s leaning bearish but it’s not there yet. Wait and see.

Daily Intraday Volatility (VIX) = 27.75 = ELEVATED: There is an elevated level of fear, which means option traders are gobbling up puts for protection. That also means the cost of put and call options are rising. Fear is creeping back into the hearts and minds of option traders.

Comment: The market started the year weak and it’s gotten even weaker. Add in the Russia-Ukraine mess and you have a recipe for trouble. This is not the time to panic, but to plan. Review what you own, make sure you are properly diversified, and decide if you are a short-term trader or long-term investor.

Investors with a long-term view who are comfortable with their holdings will likely stay the course. This is the advice given by market gurus such as Peter Lynch and the late John Bogle. Know what you own.

On the other hand, if you are a short-term trader, this will be a challenging environment. Volatile markets are not easy to manage but those who have learned how can profit from corrections and short-term pullbacks.

As I wrote earlier, although things look bleak right now, a mind-blowing rally is always possible. Therefore, don’t get too comfortable with the bear side as the market has been known to fool most of the people most of the time. Just when short-sellers believe they are in the Winner’s Circle, something often comes out of left field to wreck their hopes and dreams. Be on your toes no matter which side you are on.

It’s too early to declare a correction (let alone a bear market). SPX has fallen below its 50-day moving average, and that is a red flag. We have to see whether it can rise back above it during the week.

Obviously,, with the uncertain geopolitical situation and rising interest rates, it’s probably going to be an unpleasant week, at least at first. However, the market is always full of surprises, so be prepared for anything.

As I wrote in an earlier blog, the worst scenario for the stock market, one that I hope does not happen, is that we get a long, drawn-out, drip, drip, drip market that moves lower for months. No one is expecting that but it would be the most damaging. If that awful scenario comes true, we could see, for example, three days down, then one day up. It would not be fun (or profitable) for most people.

Bottom line: The odds are good we are entering a very unpleasant market environment. Have a plan, evaluate what you own, and raise cash if needed. Good luck out there, we are all going to need it.

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts’ latest newsletter:www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com

WHAT THE INDICATORS ARE SAYING 

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

One-week trend = LOWER. Last week was a sad one for the indexes, culminating in a selloff for SPX, which FELL from 4500 to 4418, an 82-point shellacking. Back and forth we go between the bulls and bears until someone dominates. Futures are FLAT on Sunday night.

SPX 20-day (WEEKLY) = BELOW. SPX is still BELOW its 20-day moving average but ABOVE its 50-day MA. It’s still a red flag on the weekly but there is no reason to worry too much until the 50-day is breached.

RSI: (S&P 500) @45.67 (WEEKLY) NEUTRAL TO SLIGHTLY OVERSOLD. RSI could go in either direction. It’s in the neutral zone where most traders get chopped up. No significant signals at this time.

MACD (WEEKLY) = BEARISH: The weekly MACD is below the 9-day signal line and headed directly for the zero line. Unless the market can be saved this week, MACD “could” reach the zero line. That would be a strong bearish signal. Right now it’s slightly bearish with room to reverse direction.

Daily Intraday Volatility (VIX) = 27.36 = ELEVATED: Volatility is back, which means option traders are gobbling up puts for protection. That also means the cost of options is rising (along with everything else). The warning signs are there – this should be an interesting week.

Comment: When I put all of the clues together, I see a bearish picture. VIX is elevated, MACD is headed towards the basement, SPX is below its 20-day and the weekly trend is down. On the plus side, we have seen this scenario in the past, and in the past the market staged a remarkable recovery. It could happen again.

On the other hand, this is not the same market as a year ago. Inflation is heating up, the Fed is warning they will raise interest rates (they may be forced to), there are geo-political concerns, and oil has spiked (probably because of the threat of war). Add in a 13-year bull market and it looks bleak.

No one can tell you what is going to happen this week. Most investors have been trained to “stay the course” and that has worked. The market is hanging on for dear life right now but anything is possible. That’s why it’s a waste of time to make a prediction.

I know some readers don’t want to hear it but there is always the possibility of a bear market. That would be the worst scenario, especially if it lasted a long time. The best scenario would be a short-lived correction. With that scenario, the indexes would drop by less than 20 percent, and bounce back relatively soon. Corrections are necessary on occasion to remind over-confident investors that markets do go down sometimes.

Bottom line: It’s been an unpleasant few weeks, especially for those holding technology stocks. It appears as if many fund managers are moving into recession proof stocks while dumping technology. Keep that in mind as you attempt to maneuver in an extremely treacherous trading environment. Not many are going to make it to the Winner’s Circle this year.

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts’ latest newsletter:www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com

WHAT THE INDICATORS ARE SAYING 

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

One-week trend = HIGHER. It was a more subdued week for the indexes, culminating in a rally for SPX, which rose from 4431 to 4500, a 69-point gain. While the indexes rallied, certain individual stocks (such as Meta and PayPal) got smashed, and for one day last week, the market plunged. (More on this later). Futures are NEUTRAL TO SLIGHTLY LOWER on Sunday night, subject to change in the morning.

SPX 20-day (WEEKLY) = LOWER. SPX is still BELOW its 20-day moving average but ABOVE its 50-day MA. This means SPX is still not completely out of the woods — at least until it rises back above its 20-day, and stays above. At the moment, it’s a red flag but no reason to panic.

RSI: (S&P 500) @49.52 (WEEKLY) NEUTRAL. RSI went from slightly oversold to neutral. You can flip a coin because no one knows which way SPX is going this week based on RSI.

MACD (WEEKLY) = SLIGHTLY BEARISH: The weekly MACD is still above the zero line but is firmly below the 9-day signal line. It’s still a cautionary red flag until it can rise back above the 9-day.

Daily Intraday Volatility (VIX) = 23.22= NEUTRAL: Volatility fell again, with the VIX almost back below 20, which means that all is calm again. The previous panic of two weeks ago has been forgotten, as reflected by the low VIX.

Comment: January was just a bad memory as the indexes made a nice recovery during the last two weeks. VIX fell back to a less volatile level (i.e., 23) and RSI is telling us that the market is neither overbought nor oversold.

Nevertheless, it was an ugly week for certain individual stocks. Meta (i.e., Facebook) got smashed by 26 percent in one day; PayPal and Netflix also got hit badly. Even Amazon got hit by 7 percent in one day before rallying back by 12 percent.

It’s a tale of two tapes: The indexes look rather decent, and in fact, rallied nicely. But if you were unlucky enough to own one of the stocks that plunged, you are feeling pain. In fact, the market appears to be playing a game of “Whac-a-Mole,” when you wake up each day not knowing which stock is going to get “whacked.”

The Fed is in a tough spot, all of their own making. They were late to raise interest rates, which allowed the market to move to extremely overbought levels. It’s possible this is a bubble but we won’t know the truth until later.

Meanwhile, because of inflation, the Fed is forced to raise interest rates, probably by a puny 25 basis points. If they raise rates by much more, it will affect the housing market, particularly mortgage payments, as well as any borrower whose payments are affected by interest rates. That’s a lot of people!

In other words, the Fed is going to raise rates (even if by 25 basis points) at exactly the wrong time! It will be fascinating to watch this delicate dance play out over the next few weeks and months.

Bottom line: After 13 years of a bull market, it’s getting dangerous out there. Last week it was Netflix, Meta, and PayPal. This week there could be new victims. Fortunately, the indexes keep plugging along higher, ignoring the damage done to certain individual stocks. The question we all want to know is: Which stock is going to get whacked next?

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts’ latest newsletter:www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com

WHAT THE INDICATORS ARE SAYING 

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

One-week trend = TUG-OF-WAR. It was a wild week! The bulls and bears fought each other all week, but the bulls saved the day on Friday with a 2.43% gain on the SPX. During the week, SPX rose from 4397 to 4431, a respectable 34-point gain. It could have been a lot, lot worse. This week will be interesting as the indexes could go either way. Futures are FLAT on Sunday night but that could change in the morning.

SPX 20-day (WEEKLY) = LOWER. SPX is still below its 20-day moving average and barely held the 50-day (on the weekly). Actually, SPX fell below the 50-day on the weekly but rose back above it on Friday (after that huge rally). Very close call! When SPX falls below its 50-day MA and stays below, it’s a red flag. Note that on the daily chart, it’s downright ugly. But the weekly chart gives us a bigger-picture view. It’s telling us it’s dangerous, but the bulls are still in the game.

RSI: (S&P 500) @45.98 (WEEKLY) SLIGHTLY OVERSOLD. RSI is telling us that SPX is slightly oversold so the indexes could go in either direction this week.

MACD (WEEKLY) = SLIGHTLY BEARISH: The weekly MACD is still above its zero line but is firmly below its 9-day signal line. It’s a red flag but not a disaster. If you look at MACD on the daily, it’s a massacre. However, the weekly MACD says to be cautious, but not to panic.

Daily Intraday Volatility (VIX) = 27.62 = HIGH: Volatility and fear visited Wall Street last week again as reflected in a higher-than-normal VIX. It will take some work this week to calm the markets and bring the VIX back to 20. At the moment, option traders are buying puts to protect long positions.

Comment: Anyone who watched the market last week has whiplash. The indexes were extremely volatile, making extreme moves in the futures market and beyond. It was delightful for experienced traders but difficult for everyone else.

I’m not in the predicting business but I can say that it would be wise to at least think about the possibility of a bear market. This extreme price action is not particularly healthy for the market. Eventually, one side (bull or bear) is going to win this war. The odds are with the bears based on these facts: the 13-year bull market is struggling, geopolitical concerns, the virus, inflation, and rising interest rates.

However, no one said the bulls are going to go quietly. They are going to defend to the death, as witnessed this week. Although it appeared as if the bulls were going to lose the week, they came roaring back with a vengeance on Friday, blowing away any overconfident short-sellers who thought they won. (Sadly, I know exactly how it feels to have a heavy short position on a bullish “Steamroller Day.” It feels awful!)

To prepare for a bear market, there are a number of steps you can take (all of which I outlined in my newest book coming out in May). This includes dollar-cost averaging into index funds if you are an investor. If you’re a trader, you thrive on volatility so you’re hoping this Wild West environment continues. However, be careful!

Also: If you own stocks, it’s a good time to evaluate what you own and calculate how many shares. As many investors learned in January, losses can be extremely painful (i.e., Netflix investors woke up to a 20 percent haircut!) if you’re not diversified, or if your asset allocation is out of whack.

The way to survive volatile market environments is to have a plan. This is not the time to “play it by ear.” If you are a long-term buy and hold investor, and you’re confident in what you own, then stay the course (but expect short-term pain if you don’t reduce positions). If you are a trader, it’s wise to trade small, and not make huge bets on one side or the other.

Bottom line: Prepare for some for very unexpected and wild market moves. It’s possible the markets will calm down, but not likely. After all, it’s been 13 years since many investors felt any pain for longer than a month, so this is a new experience for many.

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts’ latest newsletter:www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com

WHAT THE INDICATORS ARE SAYING 

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

One-week trend = PLUNGE. The bears took over during the week, tanking the SPX from 4622 to 4397, a mind-boggling 225-point selloff. The market has had an awful January, and there is no reason to believe it’s going to be an easy year. It won’t be. Unfortunately, many investors and traders are completely unprepared for a dangerous market (after 13 bullish years, most investors have no experience with volatile selloffs). NOTE: Futures are HIGHER on Sunday night (as the buy-on-the-dippers return), but anything is possible in the morning.

Note: A lot of financial columnists are freaking out because on Friday SPX fell below its 200-day moving average on the DAILY chart. As you know, in this blog we look at the WEEKLY chart, which gives us a longer-term perspective. When SPX falls below its 200-day on the weekly one day, then it’s time to be concerned. Until then, a bounce-back rally is likely, so don’t panic.

SPX 20-day (WEEKLY) = PLUNGE. SPX fell below its 20-day moving average as if it was sliced butter. The next stop is the 50-day on the weekly. Let’s watch to see if it holds this week.

RSI: (S&P 500) @44 (WEEKLY) OVERSOLD. It’s been a long time since RSI has been this oversold (below RSI 50), but here we are. In the past, an oversold RSI didn’t last long as the Fed cut interest rates and took other actions to save the market. Their toolbox seems depleted at the moment but perhaps they can pull a rabbit out of the hat once again and save the day.

MACD (WEEKLY) = SLIGHTLY BEARISH: While the daily MACD is a disaster, the weekly MACD is still above its zero line but below its 9-day signal line. It’s a red flag on the weekly, but no reason to panic yet (according to MACD).

Daily Intraday Volatility (VIX) = 28.85 = HIGH: Not surprisingly, fear visited Wall Street last week, and the VIX spiked higher. It’s not at extreme levels yet (above 40) but option traders gobbled up put options to protect long positions. As a result, the fear index rose dramatically.

Comment: Anyone who has been reading this blog for the last few months should not be surprised by the market selloff. Although the market had seemed unstoppable, it finally succumbed to reality (i.e., inflation, higher interest rates, and COVID) and plunged, taking cryptocurrencies along for the ride lower.

On Friday, many investors panicked, and mindlessly sold, causing the indexes to sink in the afternoon. If you look at a daily stock chart, it’s downright ugly. On the DAILY CHART, SPX fell below its 200-day moving average, MACD tanked, and RSI is in the basement.

However, in this blog we get our clues from the WEEKLY CHART, which gives more significant signals and provides a broader view of the overall market environment. At the moment, SPX is still above its 50-day MA on the weekly so there is no reason to be alarmed.

Although investors are panicking and many long-only traders are feeling pain, especially in the technology sector, we are not in a bear market yet. For that to occur, there has to be even more intense selling. Based on previous selloffs, the odds are good there will be a rally (this is not a prediction, only a possibility) this week.

If that rally doesn’t appear, and the indexes keep falling below its moving averages, then it’s going to get very ugly in the short term. Be prepared for both scenarios. It’s a good time to review what you own and have a trading plan.

After a 13-year bull market, no one should be surprised the indexes are struggling. There will be many head fakes on the way lower (i.e., there will be fantastic one-day rallies that will lure many bulls back into the market). Unfortunately, no one can predict how this “end of the bull market” scenario is going to play out.

The worst case: A long, drawn-out bear market that takes a year or longer to reach a bottom. A crash would also be unwelcome. The best scenario would be a short-term 10 or 20 percent correction. Unfortunately, the market typically goes its own way, doing the opposite of what everything “thinks” will happen.

Bottom line: Be prepared for some rough times ahead. Months ago, I expected a market selloff, one of the reasons I included a lengthy section on handling bear markets, corrections, and crashes in my upcoming book, How to Profit in the Stock Market (McGraw Hill). The book comes out on May 24th.

Meanwhile, I will do my best to help guide you during this treacherous period. Fortunately, I was mentored by a bear market expert, the late Mark D. Cook, who spent months explaining to me how to survive and thrive in volatile market environments. I truly hope that his worst predictions don’t come true, but be prepared for anything, including adjusting (or switching) trading strategies.

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Stock evaluation program from Barchart: https://bit.ly/3v9Nj9G 

For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA

For insightful analysis of the stock market, read Lance Roberts’ latest newsletter:www.realinvestmentadvice.com

For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com