This is supposed to be a bad week for the stock market.
Just about everybody knows that the second half of June leans bearish for stocks. At least, that’s what most of the talking heads on the financial news networks were telling us last week.
They repeatedly said, “We’re heading into a seasonally bearish period for stocks.”
Then, following Friday’s ugly performance by the S&P 500 – which fell 1.3% – we got a whole weekend of bearish talk on Twitter, internet forums, and even in my local pub.
So, clearly, folks are expecting stocks to fall this week.
But, I’m not so sure about that…
Regular readers know I’ve been cautious on the stock market since early June, when our “crystal ball” was predicting the Volatility Index (VIX) would be higher – and that typically goes along with a falling stock market.
Sure enough, the VIX closed Friday about 18% higher than where it was back then. The S&P 500 closed Friday about 50 points lower. So, we’ll give the crystal ball a “win” for that prediction.
And, if we were going to get an even deeper decline in the stock market this week, then the VIX call options should still be a lot more expensive than the VIX put options… But they’re not.
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The VIX call and put prices are about even.
And, several other indicators are already at “extremely oversold” levels. So, I’m not sure how much energy is left to fuel a large decline.
For example, the McClellan Oscillators (NAMO and NYMO) – which helps measure overbought and oversold readings on the Nasdaq and the New York Stock Exchange – closed below their lower Bollinger Bands (BB) on Friday.
Take a look at these charts…
This has happened two previous times this year. Each time marked at least a short-term bottom in the S&P 500.
Traders should also consider that the VIX closed above its upper BB on Friday. So, it’s set to trigger a broad stock market buy signal when it closes back inside the bands.
And that could happen as soon as today…
So, despite the seasonal weakness, the bearish action last week, and the TV talking heads preaching caution, I’m more inclined to want to be a buyer early this week rather than a seller – at least for a short-term move higher.
We can get cautious again once all the talking heads turn bullish.
Best regards and good trading,
Jeff Clark
Reader Mailbag
Do you agree more with the talking heads online, or with Jeff’s prediction using the technical indicators? And, will you be buying stocks this week or selling?
Let us know your thoughts – and any questions you may have – at feedback@jeffclarktrader.com.