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Technical Market Indicators
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March 27, 2020
Stock Market: fearful markets are erratic.
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Violent short-covering rallies are common in major bear market downtrends.
Extreme price volatility and large price swings have become the new normal.
At Monday's extreme low, at 2191.86 on the S&P 500 index, stocks appeared to be extremely oversold by normal standards. But of course, these are not normal times.
Could that have been a bottom, or even the bottom? Anything is possible, but it is too risky to try to guess at a bottom.
Last week's 3-day oversold bounce proves nothing. It may take more time before the potential reward outweighs the potential risk.
We have been out of the stock market since late January.
Even traditional safe-haven investments (U.S. Treasury bonds, notes, and gold) have been too volatile to provide protection during the recent general liquidation (indiscriminate selling pressure), leaving cash as the only truly safe alternative.
Extreme market volatility makes holding cash the safest investment strategy to control risk and protect capital.
For now, keep calm, stay safe, and be patient.
U.S. Treasury bond (TLT) partially recovered following unprecedented large losses and indiscriminate selling this month. Even normally safe-haven investments have been too volatile to trade in the current market climate of fear and uncertainty.
Gold (GLD) jumped up above key SMAs but stopped short of resistance near previous highs. GLD has been unreliable as a safe-haven amid the general scramble for liquidity.
Gold Miners (GDX) turned systematically bearish last week when the 50-day SMA crossed below the 200-day SMA.
Silver (SLV) turned systematically bearish last week when the 50-day SMA crossed below the 200-day SMA. SLV is more of an industrial metal, and SLV has failed to attract safe-haven money flows.
Copper (JJCTF) remains systematically bearish, with price below both its 50-day and 200-day SMAs, and with the 50 below the 200. The price of Copper is sensitive to prospects for global economic growth, which investors fear may be substantially dampened by the spread of coronavirus.
Oil (USO) price remains in a systematically bearish position, as it languishes far below its key SMAs and far below its previous all-time low at 7.67 set on 2/11/2016.
Sentiment remains extremely bearish. Such extreme pessimism can make the stock market vulnerable to violent short-covering rallies, which can be further enhanced by algorithmic, machine buying. We have to be cautious about attempting to use The Art Contrary Thinking, however, because fearful markets are erratic, and sentiment is a background factor that is not always useful for precise trade timing. Sentiment extremes are often early, and price momentum can sustain a trend in motion beyond sentiment extremes. Sentiment follows price trends and can remain at extremes for a long time.
$VIX Volatility Index remains oversold at 65.54. It soared to an extremely oversold level of 85.47 intraday on 3/18/2020, its highest level since the financial crisis of 2008. $VIX is up from a below-average and overbought 12.10 on 1/17/2020.
The AAII investor sentiment survey remains extremely oversold, with 32.90% Bullish, 15.03% Neutral, and 52.07% Bearish.
The Equity Put/Call Ratio eased to a neutral 0.70. It reached an extremely oversold 1.28 on 3/12/2020, its highest and most extreme level since the financial crisis of 2008. Options speculators typically react to the price action: when stock prices go up they trade more calls, and when stock prices go down they trade more puts. The Art of Contrary Thinking would suggest becoming more bullish as this P/C ratio rises toward extremely high levels and more bearish as it falls to extremely low levels--subject to the more important trend and momentum considerations.
The CNN Money Fear & Greed Index now at 23 remains extremely fearful and oversold. It fell into 0-10 range this month, down from overbought and extremely greedy levels in the 90-100 range in early January, 2020. For details, see http://money.cnn.com/data/fear-and-greed/
The full report offers clear and unbiased guidance on the following each week:
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The Defensive stock sectors
The Health Care sector
The Cyclical sectors
The Technology sector
The Financials sector
U.S. bonds and notes
Commodities (Oil, Metals, Agriculture)
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Analysis of market forces may offer a sense of probabilities. But the many variables that can impact market prices are notoriously difficult to predict. And, market analysis is something less than an exact science. So, sound trading tactics are always recommended. See my Money Management Rules.
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