The title of this blog may sound like I am promoting famed rock star group “KISS”. Either that, or I’m implying a romantic involvement with the market. Neither is the case. I’m referring to the old saying “Keep It Simple, Stupid”. Today, we will take a simple look at the market, which is often the best way.
First, I’d like to suggest you visit a very short video I published recently regarding the worst case scenario for the markets. I looked at the long term US picture since the great depression, and drew some trendlines that could be very telling. That’s available here: One Chart to Rule them ALL – ValueTrend
After reviewing that video, I’d like you to take a look at a daily chart, below. On it, I’ve outlined those simple trend following tools that you need to be aware of. That is,
- peak & trough identification,
- trend line identification,
- identification of price vs. the 200 day SMA
On the above daily price chart, you will see that the market followed a big picture downtrend (big red arrow) in 2022. You will see that there was a neartermed uptrend that began in late 2021 – also a red arrow. The downtrend line was briefly penetrated when the market broke its last peak of 4100 in early January. Then, the market retreated back into its down trend. Meanwhile, the short uptrend looks to be breaking.
The 200 day SMA (simple moving average) was cracked late last week at around 3940. Near termed support, which is seen via the last significant trough, lies at 3800. That’s about where we are now.
If 3800 breaks, next stop is the October low of 3500-ish. The SPX may pause here at 3800, as it did for about 3 weeks in late 2021. If it bounces up, that’s a good sign. However…I’d still wait for 4100 to break before I invested any of the 26% cash we hold right now. However, if 3800 breaks for 3 days+, Craig and I have agreed we will raise a bit more cash, probably backing off to a level 30% from the 26% we hold now.
If 3500 breaks, my target would be 3200 where support came in after the 2020 COVID crash (not seen on this chart). One step at a time.
In this environment, you need to stick to a system. If you don’t have a system, and would like to find out how we manage our clients portfolios, contact us here.
Or, you can take the Online TA course here – the online course is very reasonably priced to help you do things RIGHT!
Either way – Its important that you have a discipline, or you hire a firm like ValueTrend to exercise it for you. The easy days to invest are over, and the current environment is not one for beginners.
Trade smart!
12 Comments
Hi Keith , this is looking not that great for next year of so ……base on your large chart 1929 to present , its high chance to get much lower . I wonder if you could take a look and go over some long chart of bonds, like XLB , XGB and the correlation to interest rates rising and falling . I notice they start to break out of longer base , about 12 months and much longer trend channel , from about june 2020 highs .
take care ,Mike
I will revisit long bonds on this blog shortly–haven’t covered them for a while–thanks for the prod to do that!
Hi Keith,
What are your thoughts about $SPX’s weekly chart – MACD about to cross and the 200 WMA (which was support in October) at 3730?
Yes the MACD crossing (assuming it does?) would be another negative seen on the weekly
The 200 week SMA is something I have also watched over time and yes, it can be quite significant as support AND if broken. Look at the video “One chart to rule them all” – it takes a long view, which would also take a long trend view–ties into the big SMA observation. Right now, I am going to hold and see if 3800 can support the market. To me, the odds are a toss of the coin at this point if it does hold or not.
Thanks for the big picture look. It looks the Canadian Banks, ZEB, had a solid reversal (hammerish candle) from oversold conditions. RSI at 23 and Stochastics starting to hook. Would this be watchlist material for you, or because the big picture is so murky would you ignore this?
I think the banks (CDN) are in a perfect trading pattern. I have been considering a ZEB trade although have not entered. Buy near $33-34, sell near $37. 10% swing trade, not bad for the active trader. But the group needs to break that $37 wall to be considered bullish. Its failed several times, so I would be more inclined to trade it, with a stop below $33
If runs on the bank continue, with failed SVB Bank, Signature Bank, crypto FTX and Silvergate ( whose proponents was Pierre Poilievre to have their business models adopted by Bank of Canada)
it might be time to hold on to some AEM, NEM, ABX, etc
These are smaller regionals — with poor management and speculative investing–this is not 2008 again, given that the tier-1 big banks are fine and well regulated.
I do see a bullish inverse H&S pattern on the weekly SPX.
Hard to say unless the neckline breaks
I love to see Market Call, and hear all varying opinions. Brian Acker said quality banks will suffer as to profits, since attracting deposits will be more difficult, as their prestige vs lower tier shabby banks attracted depositors. With the fail backstopping deposits of good and shabby banks alike, there is no more fear to deposit money in a shabby bank. The good banks will have to pay more than before to get the same deposits.
On the other hand, Ross Healy, also on the same BNN program, stayed Canadian banks cannot fail, are well regulated, and stay invested. BA stayed, sell BNS as it will drop $7 due to less mortgages, loss of margin due to fixed mortgages issued at low rates costing them more than current Bank of Canada prime rates, due to the rate hikes. BA did say we are back in 2008 and in a recession. Amazing all this variety of opinions.
That’s why technical analysis is the discipline that provides the clearest path. Everyone has an opinion. But the chart is the chart, and (if you take my course you know this…) – rules be rules!