Regular readers know that my blog writing style is more narrative than many financial writers. Today, however, I am doing one of my musings blogs – where I post a few thoughts that have been swirling around my mind, along with a few quotes from research sources I find interesting. Here we go…
The moment of truth
Below is a weekly chart of the S&P 500. Note that we are nearing “the moment of truth” for the market to break below its June lows and continue the bear market trend. Either that, or hold 3600-ish and remain contained within a base formation – noted by the red horizontal lines on the chart.
I wrote an important blog on the three parameters needed to watch for in order for us to determine whether we are in a bull, bear, or base formation. You can read that blog here. Should we see a break of 3600, wait a few days before determining its a bear. Spikes below support occur frequently. That’s why I endorse a minimum (and that is a minimum!) of 3 days to determine if a break is the real deal. Recall the spike above the prior high in June. Sometimes, these head-fakes happen. I called the June rally out on a blog here, where I gave 4 reasons why I didn’t trust the rally.
The same could happen this time, except with a spike below the support level before reversing. Don’t trust a short termed breakout to the upside, or downside. Let the break prove to be legitimate by waiting at least a few days.
Note on the chart that the momentum indicators are still heading down and are NOT below their oversold lines. Not good news – as this implies that the market has yet to wash out and hook up. Still, lets wait and see before drawing conclusions. We should know more by the end of next week.
Mid term election cycle can be bullish
Stock Traders Almanac notes that the mid-terms elections contain a bullish seasonal bias from October of each mid-term election year through July of the following year.
Of the 22 completed election cycles, the best ten months have shown a gain 21 times (95% of the time) and a loss only once. That loss was a -1.6% decline during the 1938-1939 period. Since then, the best ten months have shown a gain over 20 consecutive cycles. The average return was +19.7%, and the median return was +21.5%. The chart below is courtesy sentimentrader.com.
Greens aren’t as green as they think, or as smart
“The cost curve of green energy has reversed with the inflation in commodities due to their high mineral content – it is diffuse energy, needs lots of ‘stuff’ to produce it. Basic physics, these people know nothing of this and think that money printing will fix it. Europe is importing wood pellets from Southeast US as ‘carbon-free’ energy, never mind the diesel requires to cut, process, and transport it. 17th Century energy. Green energy requires subsidies because, in many cases, it’s a net energy loss.
Nuclear has a large upside here relative to wind and solar. Greens have opposed (very successfully) nuclear energy because it competes as a ‘carbon-free’ energy source. With Russia (via Ukraine) war, as a result, the US is taking down Europe. This resembles the stumbling into WW1 in error, oblivious to consequences of one’s actions.” BearTraps
Tax inflation away?
I won’t rant today. Just read this article.
Final thoughts
We reported the results of our recent client survey here. You might find them enlightening.
Also worth noting: We are excited about our upcoming month-end performance numbers. We will post them in the first few days of October. A nice shellacking on the stock market like we’ve seen reinforces why you need to have an active disciplined and effective trading system.
Every morning we look at the futures and enjoy seeing the red numbers on our screens. That’s because we follow our own advice – documented in my Online Trading Course. If you haven’t enrolled in the course, may I humbly suggest you do so. Its not a lot of money, and it can save you many, many thousands of dollars in times like this. Plus it will teach you how to identify when the time is right to get back in.
Or employ a Portfolio Manager like ValueTrend to do it for you.
Case in point: We lowered beta and raised cash upon our Bear-o-meter risk signal in April (see top chart). Just as importantly, that cash is there for us buy depressed stocks at the right time. Selling high. Buying low. Now there’s a concept!
Contact us here and talk to us on how we can help do the same for you!
2 Comments
It looked like the buy the dip buyers showed up again in the last half hour of trading in the SPY. Do you think we can put in a bottom if there still is a good sized group buying the dip?
Thanks, Harry…completed your course and found it very helpful, enough so that I regularly review my notes I took.
Harry–we need to see support held for several days …I’d give it much more than a week before I start buying. Plus I would like to see my Bear-o-meter move to at least neutral. At ValueTrend, we are waiting until we see both conditions, meaning that next week’s Bear-o-meter reading will be important- especially if we see 3600’s hold on the SPX