Here are the latest technical and sentiment indicators:
Technical Indicators (daily chart)
S&P 500 is below its 50-day MA = Bearish
MACD (S&P 500; 19,39,9) is slightly below its zero line and pointing down = Bearish
MACD (S&P 500; 19,39,9) is below its signal line = Bearish
S&P 500 support @ 2330 (it’s slightly below support), and 2305.
Sentiment Indicators (+RSI)
II survey: (April 11): 56.3% Bulls; 17.5% Bears = Bearish
AAII survey: (April 12): 29% Bulls; 37.4% Bears = Neutral
VIX: @ 15.96 = Neutral
RSI: (S&P 500) @ 35.90 = Neutral
Comment: It was the first time in 16 years that the market sold off on the day before Good Friday. Last week was dangerous because of multiple intraday reversals ending in the Thursday selloff during the last half hour. It’s too early to proclaim the bull market is over but red flags are everywhere. The technical indicators are signaling we’re in for a short-term selloff but that can change on a dime. Nevertheless, it’s time to be more cautious than usual based on the technical readings. For example, the S&P 500 fell below its 50-day moving average. We’ll watch this week to see if the indexes can rise above its 50-day MA or sink further. If the indexes continue to plunge, look out below. (If there’s a selloff, my technician friends say we could get to 2100 or 2200 on the S&P 500 before there’s a bounce).
Depending on how painful it gets, I’ll be looking at the millions of investors sitting in index funds. I wonder how much pain they can take before they sell. As I wrote earlier, it’s too early to proclaim the bull market is over, but you should definitely be on guard. In the past, when the market seemed ready to fall into the abyss, it was miraculously saved by Fed comments or actions. This time I’m waiting to see what happens. One thing for sure: If this is the real deal (i.e. correction and trend change), it will be brutal. If you aren’t comfortable buying put options, wait until the selling stops and be prepared to go long.
Bottom line: No one can predict what is going to happen this week, so be ready for anything. As I predicted weeks ago, volatility is making a comeback. That’s great for traders but it will make investors dizzy and nervous. Keep your eye out for intraday reversals, late day selloffs, and head fakes.