Feb11

Bullish or Bearish? Week of February 12, 2024

Welcome to my blog! I believe that most beginners should start by investing in index funds, which will be in their core account. I personally like selling covered call options on stocks that I own, providing income. Nevertheless, this blog was written for short-term stock and option traders who want a weekly report on the market using technical analysis.

Note: You can preorder my newest book, Help Your Child Build Wealth (Wiley, November 2024) at Amazon: https://bit.ly/3OGOVmO or Barnes and Noble: https://bit.ly/49x6gGS .

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Short-term trend (DAILY CHART)   BULLISH: Last week, SPX rose from 4958 to 5026, another 68-point rally, and another all-time high for SPX. Surprisingly, not many people celebrated SPX surpassing 5,000. Maybe they did somewhere, but I didn't see it. The market seems unstoppable, and that is when you should be on guard. UPDATED: Futures are FLAT on Monday morning.

Long-term trend (WEEKLY CHART) – UBER-BULLISH: SPX on the weekly looks like a rocket ship. Few seem to realize the danger, and yet, it's foolish to step in front of a speeding train.

MACD (DAILY) = BULLISH. MACD turned bullish again as it rose above the 9-day signal line, and has been above the zero line for months.

RSI: (S&P 500) = 73.10 (DAILY) EXTREMELY OVERBOUGHT: RSI is above 70 again, which is a red flag. As I've often said, RSI has given accurate short-term reversal signals. Although an overbought market can become more overbought, the higher the market goes, the bigger the danger.

Comment: With RSI above 70 again, short-term traders should take precautions. Nevertheless, RSI can warn us that the market is overbought --- but it cannot say when the fun ends and the reversal begins.

According to the Investment Sentiment survey ( February 8), bullish sentiment is at 49 percent, which is an "unusually high level," according to Investment Survey. The historical average is 37.5 percent so we are in rarified air (as RSI is warning us). By the way, this is the 14th week in a row bullish sentiment is above average. Put another way, we have moved firmly into the "greed" stage.

Add in the fact that SPX is above 5,000 and contrarians should be on alert. A 10 percent correction is coming, but no one can predict when, and what will cause it. Just be aware it's coming.

Note: Congratulations to the Kansas City Chiefs for winning the Super Bowl.