Markets fall: time to panic?

The S&P 500 took it on the chin last week. Having tested the 2100 zone in November and again in early December, the market decided enough is enough. Time for a retreat. A couple of things I might point out on the charts:

S&P timing

  • Neckline off of the summer’s double-bottom formation comes in at 1990 – this will present very strong support.
  • Seasonality for the last two weeks of December is undeniably strong. This period is one of the strongest for the market on an historic basis
  • Short termed momentum indicators stochastics and RSI are approaching their oversold zones on the daily chart. A washout to 1990 would bring these indicators firmly into that zone. No hook up yet- wait for it.
  • Bollinger’s are once again signalling oversold. The lower band can be overshot, as in the last two lows, but these overshoots haven’t lasted too long lately.
  • Cumulative moneyflow (bottom pane) is declining on the daily chart – it is, however, quite bullish on the weekly chart.

S&P

There can be no denying the power of that 2100-2130 area of overhead resistance. The longer the base, the greater the case, as is said. The S&P 500 has been testing and retesting 2130-ish since February – that’s 10 months and counting! So what’s the plan?

I’m looking for a rally into the first week of January, based on the factors mentioned above. From there, I expect one of two things will happen: either another drop – or – a sectoral rotation into a new leading sector that could plod on through that overhead resistance. My call is for both to happen (talk about wishy-washy analysis!).

 

Here’s why: At this point there are no signs of newly emerging leadership in any of the major S&P sectors. Thus, I believe that 2100-ish will be unsuccessfully tested. However, at some point over the coming months (heck–it may not be until later in 2016!) we will see that white knight sector come to the market’s rescue. A new leg in the bull market will be born.

 

Strategy

I plan on selling several of the stocks and ETF’s I hold — likely in the first week or two of January. I’ll wait a bit – should the market sell off, I’ll look to re-enter. Should the market blow though 2100–I’ll rotate into the leaders. Better to buy higher than take chances.

So there you have it. My Merry Christmas, Happy Hanukkah, or general holiday gift to you is this strategic overview. I hope it helps.

 

Keith on BNN this Friday

I will be on BNN’s call-in show MarketCall Tonight Friday December 18, 2015 at from 6:00pm to 7:00pm. Tune in to BNN to catch me live on BNN’s premier call-in show, where viewers like yourself can ask my technical opinion on the stocks you hold.

Call in with questions during the show’s live taping between 6:00 and 7:00 pm. The toll free number for questions is 1 855 326 6266. You can also email questions ahead of time to [email protected] – it’s important that you specify they are for me.

BNN studio2

Keith’s rant

Next week, brace yourself for my yearly off-topic blog – which I write during the “quiet” holiday hours around Christmas. This year it’ll be controversial. Contrarian investing opinions, remember, is one of my specialties!

10 Comments

  • Thank you for the transparency that you have brought to my market strategy and it is really great to have someone teach you from afar as you do…so, keep up the great work and thank you again.

    Reply
    • My pleasure Eugene
      As Red Green (if you don’t know who he is–for shame!!) said: “We’re all in this together”

      Reply
  • Hello Keith,
    I have enjoyed studying your books and following you on BNN. You were favourably disposed towards BCE recently, which I own. Looking at its chart, I wonder if there has been a double top, comparing prices from Feb 6th 2015 and recent highs. Is this what you see? Would you consider this a relative sell sign for this stock, if someone owned it? In your upcoming comments on bnn, could you possibly review double tops? Thank you kindly.

    Reply
    • Joanne–BCE would have to break about $52 and stay there for a bit of time to put in a double top formation. At this time, there is no sign of that happening.

      Reply
  • Keith,

    Many thanks for this. As you seem to be in a Santa mood, could you provide a similar look at the TSX 60? It looks like it may already be heading down. Thanks.

    Brian

    Reply
    • Brian I will blog on the TSX next week. Its the topic for my yearly “rant” blog – be prepared for some – well, ranting! But in a nutshell–the 60 and the 300 are both about 70% weighted in energy, materials and banks. So if you want to know the direction of the index, just look at those sectors. Energy= bearish. Materials = bearish. Banks = neutral.

      Reply
  • Hi Keith,
    Thanks for your thoughts in this market that seems to be taking out some good stocks.
    Is the smart money buying and dumb money selling?
    Thanks for your thoughts.
    Chris in Niagara

    Reply
    • Chris in Niagara–I love Niagara on the Lake–we do a yearly long weekend trip to do the wines and Shaw and the historic buildings. One of my favorite places on earth!
      Anyhow – to your question – smart and dumb money index are about split even –with smart money confidence at 45% and dumb money at 51% (sentimentrader.com) – there’s no extremes to trade off of here.
      This lack of extremes might suggest that the sideways market will continue–ie per my blog–expect a rally back to 2100-2130- then a selloff again.

      Reply

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