Disclaimer: This post is for entertainment purposes only. It is not intended to be personal financial advice. If you want financial advice, hire a financial advisor. I'm just some guy on the internet, so please don't make any financial decisions based on this or any other blog post.
* * *
After a sharp decline in the stock market, the last two trading sessions showed a nice rebound. Will the rebound continue, or are we on the precipice of the next leg down?
Let's examine the charts.
Here's the S&P 500:
At the top, we see the RSI is below 50. This suggests that the rebound hasn't yet played itself out. At the bottom, the MACD is about to see the signal line cross over to the upside, so that's another bullish indicator for this week. As for the 50-day and 200-day moving averages, there's lots of space between the two, so there won't be a crossover any time soon. The 50 is above the 200, and that's a long-term bullish indicator. The index, though, is trading below the 200-day average, so that curve acts as resistance. We could see modest increases or mostly sideways action this week, but they might not break the 200-day moving average.
Moving on to the VIX...
The recent drop-off in stocks only sent the VIX to just under 30. That's not a lot of volatility for a true correction or crash. That tells me there might be more volatility on the way. On the other hand, the MACD just crossed over to the downside, and that's a bearish signal (bullish for stocks).
What about small caps? Here's the Russell 2000:
As you can see, small caps peaked in November and have been in decline since. The recently low levels of the RSI are bullish--or at least, temporary rebound--indicators, and we're also about to get a MACD signal line crossover to the bullish side. On the other hand, the bearish trend has been in place for nearly four months now, so it's firmly in control until we see evidence to the contrary. Also, the 50-day moving average will soon cross over the 200 to the bearish side, and the index is trading well below the 200. This index might tread water this week, and possibly next week, too, but then I expect it to resume its fall.
Now we get to the creme de la creme, the Dow Transports. This index represents the movement of goods and services, and it has long been used as a leading indicator of the broader stock market. When the market is going one way but the transports are going the opposite way, that's a good indicator that a change in the broader market is about to occur.
This chart looks similar to the small-cap chart. The only significant difference I see is that the 50/200 crossover will happen sooner, probably after Tuesday's trading session. My conclusions for the transport index is basically the same as for the Russell.
So that's my thinking right now. Maybe I'm right, maybe I'm wrong. We'll see. But I'm not backing up the truck just yet. Maybe in April or May.