To Retest Or Not To Retest

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

There are many opinions on whether or not December 2018 lows for indices are going to be retested.  I believe that major US indices have reached a fork in the road, one path is to advance higher to challenge recent all-time highs and the other path is to sell-off to retest December lows and possibly to continue going lower.  Nobody knows for sure which path indices would take but the next four trading days will be very telling.

Last December, as shown in SPX monthly chart above, SPX broke through its M-DTL and began trading below it.  Since then, M-DTL, which had been acting as a strong support for SPX since early 2016, has become a strong resistance.  Last Monday M-DTL stopped the recent rally that started in late December.

There are four trading days left in January.  If SPX cannot close, by at least 0.5%, above its M-DTL (currently at 2683) in those four days, there would be a greater than 66% chance that December lows would get retested sometime in early February.  Should that retest fail, SPX would very likely sell-off more to test PUL-2 and PUL-1 supports around 2300 to 2200.

SGS advanced sharply last week.  Should rally since December lows continue, there would be a high chance that SGS turn NEUTRAL or even LONG by week's end.  

Support and resistance levels for SPX for this week are shown above.

My Plan

I'm still in cash and looking for an entry to open my first of three long positions. My plan is to do my first of three buys early this week in SPY (30%) and the following stocks (10% each):

1. WDAY
2. LULU
3. AVGO
4. XLNX
5. VRTX
6. UNP
7. SBUX 

Current Long-Term Portfolio (2019)
Past Long-Term Portfolios (2018-2008)

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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 Bull Case

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

Q4 earnings reports and outlook have been mostly positive for those companies that have  reported so far.  On Friday January 4, current and past Fed. heads assured financial markets that "Fed PUT" is still in and continues to be in for the foreseeable future.  Inflation data is tamed, GDP growth data has been bullish, and unemployment is at historic low levels.

Major indices have rallied around 10% to 15% in the last 16 trading days with bullish internals and breadth. All seven major indices (RUT, DJT, DJI, SPX, NAZ, OEX, and NDX) are now trading above their 50 D-SMA while number of new 52-week lows have reduced to benign levels that usually accompany a bull leg. 

There is chaos in Washington DC but that will get sorted out one way or another in the next few months.  My guess is that Trump would be forced to resign.

After bottoming at -1741 on December 26, SGS advanced sharply in the last 16 trading days.  The sharp reversal of SGS signals that there is a better than 90% chance that the lows printed on December 26 for major indices was the bottom for the recent sell-off.

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


My Plan

All five major indices (DJI, DJT, NAZ, RUT, and SPX) are now trading above their  50 D-SMA's.  SGS is still short but there is a 70% or higher chance that it would turn NEUTRAL or even LONG by Friday.  My plan is to do my first of three buys early this week in SPY (30%) and the following stocks (10% each):

1. WDAY
2. LULU
3. AVGO
4. XLNX
5. VRTX
6. UNP
7. SBUX 


Current Long-Term Portfolio (2019)
Past Long-Term Portfolios (2018-2008)

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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 20% Crack

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

In the last 20 years or so there have been a number of financial debacles that have resulted in a sudden and quick collapse of banks or hedge funds.  The collapse of MF Global in 2011, Long-Term Capital in 1998, or Barings Bank in 1995 are prime examples of those financial debacles.

One thing those sudden and quick financial meltdowns had in common was that, once losses in positions they held exceeded a certain level, the demise of the hedge fund or the bank became inevitable.  It was similar to a crack in a dam wall.  Once the crack grows to  a certain size, fluid dynamics laws governing the water pressure and the water flow around the crack, dedicate the collapse of the entire wall.

Since SPX bottomed at 666 in March 2009, as shown on the chart above,  every time SPX corrected 15% or higher from its recent high, the Fed or other central banks intervened indirectly to shore up major indices. Two Fridays ago on January 4, 2019, once SPX had corrected 20% from its recent all-time high, Powell, Yellen, and Bernanke assured financial markets that the Fed would not hesitate to intervene again should it become necessary.  In other words,  the Fed PUT is still in.  U.S. major indices rallied around 4% that day, they have continued their rally and as of the close of last Friday, major indices are up around 10% from their recent lows on December 26, 2018.

It seems that, post 2008-2009 Sub-Prime Crash, once the size of the crack in the Wall Street, grows to around 20%, the Fed rushes in to fill the crack at all costs.  Maybe the Fed knows something we don't, i.e. once the crack grows beyond 20%, the entire Wall Street collapses. Maybe, that's why the Fed has not and will not let any correction get larger than 20%. Maybe the Fed would be powerless in stopping the next significant correction similar to how major financial houses in 1929 could not stop the biggest stock market crash in history.

After bottoming at -1741 on December 26, SGS advanced sharply in the last six trading days.  The sharp reversal of SGS signals that there is a better than 90% chance that the lows printed on December 26 for major indices was the bottom for the recent sell-off.

Support and resistance levels for SPX for the upcoming week are shown above.   Going forward, I see three scenarios for SPX:

• (A) Most Likely (70%) - SPX and other major indices fail to close above their 50 D-SMA's, sell-off and successfully test their recent lows (SPX 2346) with super bullish divergences in SGS, volume and indicators. Major indices then start a new bull leg to challenge their all-time highs.
• (B) Unlikely (20%) - SPX and other major indices continue their rally, close above their 50 D-SMA's and continue higher to challenge their all-time highs.
• (C) Very Unlikely (10%) - SPX and other major indices fail to close above their 50 D-SMA's , they sell-off, take out their recent lows (SPX 2346), and go lower to test lower support levels.

My Plan

I'm still in cash and watching the action from the sideline. I need to see at least three of five major indices (DJI, DJT, NAZ, RUT, and SPX) solidly (0.5% or higher) trade and close above their 50 D-SMA's before opening long positions.

Current Long-Term Portfolio (2019)
Past Long-Term Portfolios (2018-2008)

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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.

plus ca change, plus c'est la meme chose

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 was on full display on Friday when Ben and Janet held Jay's hands as he cried uncle.  That pleased the market.  Jay finally understood that Hands of the Fed are in no mood to be asked to return the assets they "hold" for the Fed.  Jay, like Janet and Ben before him, is a quick learner. It took him only three months and a 20% sell-off  to learn that when the global economy and the working class retirement are held as hostages, there is no negotiation.  It's a total and unconditional surrender.

The above chart shows all four sizable corrections for SPX, including the current correction, since March of 2009.  In light of what happened on Friday morning (Powell PUT is in), there is a better than 70% chance that SPX bottomed on December 26 at 2346.  There is also a 30% chance that the December 26 low would get successfully tested sometime this month.  Even if the retest of 2346 fails, there is only a slim chance that SPX trades below 2200.

After bottoming at -1741 on December 26, SGS advanced sharply in the last six trading days.  The sharp reversal of SGS signals that there is a better than 90% chance that the lows printed on December 26 for major indices was the bottom for the recent sell-off.

Support and resistance levels for SPX for the upcoming week are shown above. Short-term, there is a high chance that the rally that started on December 26 continues as SPX tests its overhead resistance levels.

My Plan

I'm still in cash and watching the action from the sideline. A weekly close above 2700 is the green light I would be looking for to open long positions in seven to 10 stocks.

Current Long-Term Portfolio (2019)
Past Long-Term Portfolios (2018-2008)

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.