A Bottom Or The Bottom Is Near

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

Trading is about understanding and accessing probabilities that exist between zero and 100 percent certainties.  Take the current sell-off for example, we can state with 100% certainty that the current sell-off either ended last week or will end at some point in the future.  We can also state with 100% certainty that, at the worst, indices bottom at zero someday in the future, hopefully very far.  When and at what levels major indices bottom for the current sell-off, cannot be determined or calculated as a certainty. Using technical, fundamental analyses and common sense, it can only be predicted as a probability.

The above chart shows all four corrections for SPX, including the on-going correction, that were greater than 15% since March of 2009.  My analysis, which includes trend, breadth, and internal data, shows that, as of the close of Friday, there is a 70% chance  that SPX bottoms in early January of 2019 somewhere between 2300 and 2200 as it tests supports at its PUL-2 and PUL-1.  My analysis also leaves a 30% chance of SPX selling-off an additional 15% to 20% to test support around 1800.

SGS declined last Monday and Wednesday before heading higher on Thursday and Friday.  SGS is still deep in the SHORT territory which signals that the selling very likely continues. 

Support and resistance levels for SPX for the upcoming week are shown above. Short-term, indices are still at extreme and historic oversold levels.  There is a high chance that the rally that start last Wednesday continues into the first week of January as SPX tests resistance levels at 2550 and 2625.

My Plan

I'm in cash, and after three losing years, I'm happy that I'm closing 2018 with a double digit gain.  I'm watching how indices trade in the first couple of days of the new year and will make a decision on opening new positions in my long-term portfolio. 

Current Long-Term Portfolio (2018)
Past Long-Term Portfolios (2017-2008)

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Contact: opader@gmail.com

SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line

TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Chaos On Steroid

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

Political and financial chaos is exploding as Trump presidency is imploding before our very eyes.  While that implosion is taking place, the political chaos and uncertainty continues, causing indices to go lower and lower. It seems that selling would not end  until Trump is out of the White House one way or another.

Last week I wrote that Dynamic Trend Line (DTL,13 EMA) on the SPX weekly chart played a pivotal but contradictory role in the four significant corrections, including both "Dot-Com" and "Sub-Prime" crashes, since 1999. I believe in January 2019, it's likely that DTL on SPX monthly chart plays the same pivotal role again  as summarized below:

• If on January 31 SPX closes 2% or more above DTL on it's monthly chart, it would signal that there is a high (>70%) chance that the correction has run its course and SPX bottomed at the monthly low of January 2019.
  
• If on January 31 SPX closes 2% or more blow its DTL on it's monthly chart, it would signal that there is a high (>70%) chance that correction continues for another year and another 35% to 40%.

I believe the chaos continues so long as Trump is in the White House.  I also believe that it is highly unlikely that Trump would be out of the White House by the end of January.  Therefore, as of now the likelihood of SPX closing below its DTL is higher than SPX closing above it; and hence the chance of indices dropping between 35% or 40% in the next 12 months is substantially higher than indices finding a bottom soon.

SGS declined significantly more last week and went deeper into the SHORT territory.  On Friday, as shown above, SGS reached a value that is the second lowest value in 20 years.  The lowest value for SGS in the last 20 years (calculated by back-testing) occurred on at the height of "Sub-Prime" financial crisis on Friday October 10, 2008.  On that day SPX found a temporary bottom and then rallied (the mother of all dead-cat bounces) from 839 to 1044 or 24.4% in three days before heading lower. SPX eventually bottomed out at 666 (Haines Bottom) on March 6, 2009.

Short-term, indices are at extreme and historic oversold levels.  They either bounce back 5% to 10% over the course of a few days or snap and crash 5% to 10% lower  in  one day. The more over-sold indices become, the higher is the chance of a single day mini-crash. 

Support and resistance levels for SPX for the upcoming week are shown above.

My Plan

Per my plan I closed all long SDS positions as SPX tested support around 2550. Of course SPX Friday's close is about 5% lower which means I left around 10% additional gain on the table. I understand that but I also have learned the hard way that trying to trade perfectly is a fool's errand.

Current Long-Term Portfolio (2018)
Past Long-Term Portfolios (2017-2008)

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Contact: opader@gmail.com

SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line

TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Chaos Is Spiraling Out Of Control

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

Major stock market indices continue their decline as the chaos spirals out of control in Washington. There are at least six or seven on-going criminal investigations that so far  have resulted in conviction of seven individuals who are either in  jail or waiting to be sentenced.  They include Trump's personal attorney, his presidential campaign manager, advisers, and money men. If that is not enough chaos, once the new Congress is seated, there will be at least five more congregational investigations of Trump and his family members.  

In the meantime, economies across the developed and developing world are either in a recession or slowing down as central banks implementing their quantitative tightening plans.  Selling will continue.

Since 2000, as shown on above S&P-500 (SPX) monthly chart, there have been four significant (15% or higher) corrections, including two crashes.  In those corrections, Dynamic Trend Line (DTL,13 EMA) played a pivotal but contradictory role depending on the size of the correction. In the two recent smaller corrections in 2015 and 2011, SPX bottomed out at the monthly low of the second month trading below DTL.  For 2008 and 2000 crashes, however, after SPX traded and closed below DTL for two consecutive months, it continued its decline for another year, correcting an additional 42%, in "Dot-Com Crash", and 50% in "Sub-Prime Crash".

As of the close of Friday, SPX is about 100 points or 3.7% below its DTL. There is a good chance that SPX closes below its DTL this month.  If SPX continues to sell-off and  closes below its DTL in January 2019, it would signal that the recent correction is not done and SPX could correct significantly more.  The picture is blurry and it's hard to say where indices are heading but it would clear up in mid to late January 2019.

SGS declined more last week and went deeper in SHORT territory.  That signals, in the long-term (weeks to months), there is still a high chance (> 70%) that major indices continue trading lower.

Support and resistance levels for SPX for the upcoming week are shown above. The sell-off that started on Wednesday likely continues on Monday and possibly Tuesday as SPX tests support around 2550. I expect a sizable "dead cat bounce" later in the week, probably starting shortly after the FOMC announcement and press conference on Wednesday.

My Plan

Per my plan, I opened my second (on Tuesday) and third (on Friday) long positions in SDS.  For now, my plan is to close all SDS positions as SPX trades at or near 2550, possibly on Monday or Tuesday.

Current Long-Term Portfolio (2018)
Past Long-Term Portfolios (2017-2008)

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Contact: opader@gmail.com

SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line

TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

The Beginning Of The End

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

On Friday for the first time Federal prosecutors directly implicated Trump in two crimes in his 2016 campaign. This is the beginning of the end of the Trump presidency in my opinion.  

It's remarkable how similar the order of events is to Watergate.  Richard Nixon had better than 50% approval rating and the support of all of republicans in the Congress until in spring  of 1974 when the Watergate special prosecutor (appointed by the House after DOJ special counsel was fired by Robert Bork following Nixon's order) started releasing his findings and issuing indictments. Also in spring of 1974 Watergate hearings started in the House Judiciary Committee.  At that point, it became abundantly clear to Republicans in the Congress that Nixon was toxic and they would lose their seats in the mid-term election of 1974 with Nixon in the White House.   It still took until summer of 1974 for Republicans to march to the White House and demand Nixon's resignation.  Nixon resigned on August 9, 1974.  A month later, President Ford gave a full pardon to Nixon.

I see a similar thing happening again as history repeats itself.  An R-rated version (thanks to Stormy and Karen) of Watergate is underway now.  My main interest is what's going to happen to the stock market.  As shown in above chart, SPX corrected around 50% during Watergate (1/1973 to 10/1974) and the bulk of that correction (about 40%) occurred at the height of Watergate scandal.

As shown above, the "bottom head & shoulders" price pattern on SPX daily didn't pan out when SPX could not overcome the resistance around 2800.  Short-term, however, Indices are at extreme oversold levels.  Chances are good that we see a bounce early this week before indices resume selling.

SGS declined everyday last week and it still in SHORT territory, signalling that, in the long-term (weeks to months), there is still a high chance (> 70%) that major indices continue trading lower.

Support and resistance levels for SPX for the upcoming week are shown above. 

My Plan

On Friday, I opened my first of three positions in SDS. My plan is open my second SDS position early this coming week and the final SDS position if and when SPX takes takes out support around 2630-2620.

Current Long-Term Portfolio (2018)
Past Long-Term Portfolios (2017-2008)

twitter
Contact: opader@gmail.com

SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line

TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Economic Crisis Avoidance

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

Economic Crisis Avoidance Deus ex Machina - Part I: Active Asset Price Inflation

• Asset Price Inflation as a tool of monetary policy
• Rate hikes to end soon
• New large-scale asset purchases in the future
• Crash and recession delayed

... read more 

As shown above, the "bottom head & shoulders" price pattern on SPX daily chart is still in play.  There is still a  reasonable chance that SPX rallies this week to test the Neck Line around 2810 to 2820. 

SGS advanced everyday last week but SGS is still in SHORT territory, signalling that, in the long-term (weeks to months), there is still a high chance (> 70%) that major indices continue trading lower.

Support and resistance levels for SPX for the upcoming week are shown above. 

My Plan

No change since last week, I'm still in cash and going to watch internal data as SPX trades around 2800 this week.  Again, I'm specifically looking at the number of new lows for yearly, quarterly, and monthly time frames.  If the sell-off is done and indices are to move higher to challenge their all-time highs, then the number of new lows should drop significantly in those time frames.  Otherwise, what's going on is nothing but a bear market counter-trend rally to trap bulls.

Current Long-Term Portfolio (2018)
Past Long-Term Portfolios (2017-2008)

twitter
Contact: opader@gmail.com

SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line

TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Short-term, Indices Are Oversold

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

Major indices declined last week but market breadth and internals improved significantly. There is a good chance that indices are oversold in the short-term and we could see a counter-trend rally on the back of short covering early this week.

As shown above, the "bottom head & shoulders" price pattern on SPX daily chart is still in play.  There is still a good chance that SPX rallies early this week to test the Neck Line around 2810 to 2820. 

SGS declined early last week but advanced on Wednesday and Friday.  SGS is still in SHORT territory, signalling that, in the long-term (weeks to months), there is still a high chance (> 70%) that major indices continue trading lower.

Support and resistance levels for SPX for the upcoming week are shown above. 

My Plan

No change since last week, I'm still in cash and going to watch internal data as SPX trades around 2700 early this week.  I'm specifically looking at the number of new lows for yearly, quarterly, and monthly time frames.  If the sell-off is done and indices are to move higher to challenge their all-time highs, then the number of new lows should drop significantly in those time frames.  Otherwise, what's going on is nothing but a bear market counter-trend rally to trap bulls.

Current Long-Term Portfolio (2018)
Past Long-Term Portfolios (2017-2008)

twitter
Contact: opader@gmail.com

SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line

TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Fed's Next Move

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

The U.S. Major indices, at their recent lows late last month, had corrected on average about 15% from their all-time highs in September.  However, in the last two weeks, major indices have recovered between 1/3 to 1/2 of their losses, and at least for now, they have avoided entering into a bear market when major indices drop 20% or more from their 52 week highs. 

The question before the Fed is whether  or not the recent sell-off in the US equity markets is signalling that the U.S. economy is going to follow most of world's economies and slow down significantly.  The correct or incorrect answer to that question will dictate the Fed's next move for interest rates.  If the Fed decides that the U.S. GPD is continuing to grow at a moderate to a high rate (3% to 4%), then the Fed very likely would stay with their current plan to increase  rates next month and in 2019.  Multiple rate hikes would push major indices considerably lower.

As shown above, SPX seems to be forming a "bottom head & shoulders" price pattern on its daily chart.  At this point there is a high chance that SPX rallies early this week to test the Neck Line around 2810 to 2820.  It's difficult to predict what would happen around the Neck Line.  The picture becomes clear once SPX reaches the Neck Line and trades around it.

SGS declined early last week but advanced on Thursday and Friday.  SGS is still in SHORT territory, signalling that, in the long-term (weeks to months), there is still a high chance (> 70%) that major indices continue trading lower.

Support and resistance levels for SPX for the upcoming week are shown above. 

My Plan

I was expecting a panic selling event last week but it didn't happen. On Wednesday and Friday, I closed my long SPXU positions.  I'm in cash and going to watch internal data as SPX trades around 2815-2820 early this week.  I'm specifically looking at the number of new lows for yearly, quarterly, and monthly time frames.  If the sell-off is done and indices are to move higher to challenge their all-time highs, then the number of new lows should drop significantly in those time frames.  Otherwise, what's going on is nothing but a bear market counter-trend rally to trap bulls.

Current Long-Term Portfolio (2018)
Past Long-Term Portfolios (2017-2008)

twitter
Contact: opader@gmail.com

SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line

TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.