Hold, or fold?

October 23, 20234 Comments

Here we go again. Don’t trust the media.

 

Crash!

Run for your lives! Sell your stocks! Hide under a rock! You’re going to lose 63%, don’t ya know???? Here’s a headline from Friday:

 

Buy, buy, buy!

No, wait. Ignore that bearish headline above! Buy, buy, buy! Back up the truck, we’re gonna make 14% in just 2 months, don’t ya know???  Headline from last Thursday:

 

Think for yourself.

If  you’ve taken my Online Trading course, you know the following:

  • You must use macro trend, breadth and sentiment rules to determine the overall market risk/reward tradeoffs
  • You must use trend, and fundamental rules to determine when to buy, and – more importantly-  when to sell
  • You must have quantitative position allocation rules to ensure adequate exposure, without over exposure
  • You must follow a rule-based system to save you from yourself – aka your emotions.

If you have not taken the course, you should. Its extremely cheap, massively pragmatic, and super easy to follow (bite sized modules). I priced it to be affordable to everyone.  The course has been universally praised by participants.  It can literally save you  thousands of dollars in bad trades, while helping you make predictable returns. Here’s the link:  ValueTrend Technical Analysis

Lets cover some of the key rules we need to follow when assessing whether one, or none, of the headlines above are worth the time it took to read them.

TREND – vital support being tested. 

Pretty much on the borderline here for trend and moneyflow. Officially, the neartermed trend is bearish. But – vital areas of support as noted on the chart are currently being tested and (so far) holding. Moneyflow is weak. Seasonality is tenuous until November. This week is going to be telling. Will it hold, or will it fold?

SENTIMENT  – becoming over pessimistic, but not a capitulation yet

Across the board we are not seeing full capitulation signals yet. Put/Call is not in the buy zone. Nor is the VIX, albeit both are closer than they were a month ago.

Smart/Dumb ratio is not in the buy zone – close, but not there. Overall, no edge signaling the end of the downtrend yet.

BREADTH – positive oversold signals emerging

Percentage of stocks over their 50 day SMA’s are oversold. New highs vs lows – chart below- are also at a bullish oversold level.

 

Conclusion

Its becoming a bit more encouraging – but we will continue holding our cash at ValueTrend until we see firm support at 4200 held for this week AND a bounce. Sentiment does not need to enter capitulation to form a bottom – but it would be nice if it had. It would make me more confident of a sustainable rally if we get that bounce.
Either way.  We are still in wait n’ see mode until evidence strongly suggests better times to come. We aren’t there yet.

 

 

4 Comments

  • Thanks Keith. You’ve been calling that 4200 level of Support for a long time. We are here now. My daily and Weekly indicators are still all pointing down… but there are positive divergences on the other hand. I’m mainly cash watching. I know you might not like that one but I see a short term bearish possibility in Oil / oil names (XEG). Maybe a pull back in the Gold names also (XGD). We’ll see.

    As far as the S&P, I’m with you ( support at 4200). I’m not shorting at this point (maybe a bit late), but I’m not buying either (indicators still pointing down). we’ll see !

    Reply
    • Lou if you follow my work regularly you will know that we called for a pullback in oil, and cut our exposure in half recently. We still like the longer view.
      As far as gold–I have noted that the entry point should be near 1700 or lower–see my gold video.

      Reply
  • Nice work to you and your team Keith! Been a member for several years, and I no longer fear the markets volatility. I get so much more out of the charts nowadays. Bring it on!

    Reply
    • Thx Ken–after 33 years in the biz, my mission is as much about trading correctly to live up to our clients expectations, as it is about educating people in the value of TA. When I started in 1990, and began studying charts, it was considered witchcraft. My how things have changed.

      Reply

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