Neartermed trading plan

November 12, 20236 Comments

I was on the BNN MarketCall show on Friday doing my usual thing – when something unusual happened. During the show, and up to that point, the S&P 500 had been below my next key resistance point, which was the old peak in the June-October downtrend. That lay at 4380. I noted on the show that the SPX was banging its head against that peak, with no luck of breaking it so far. By the time my show ended, the SPX had taken 4380 out, to end at 4415! That’s a pretty decent intra day rally, considering the SPX was DOWN in the morning!

Here’s the clip for the BNN show

So… What’s next for the market? Today we look at my neartermed timing system to get some perspective on that question.

Below is the S&P 500 daily chart with my neartermed timing overlay – I’ve posted this overlay many times over the years. Its been pretty accurate for short termed calls at moments like this. The system is simple:

  • It looks for simultaneous signals from a Bollinger Band top or bottom band test (aka overbought, oversold signal).
  • It looks at stochastics for a neartermed overbought (top horizonal zone) or oversold (lower horizontal zone) signal, with a hook.
  • It then looks at RSI for a mid-termed view – specifically watching for hooks up (oversold) or down (overbought) from low or high zones. Note that RSI doesn’t always get into its extreme lower or upper horizonal lines when signaling a move within this short termed system. However, the deeper the level of RSI, the more significant the move.

Looking at the chart below, you will see the October “oversold” signals for a positive move on the SPX – which I alerted you on this video. That is:  a bullish oversold hook up on stochastics and RSI, and a Bollinger Band (BB) lower band touch and hook up. Boom! Up went the market.

Now, we are seeing one overbought signal on stochastics. However, note that the upper BB is not yet being tested. Nor is RSI. Meanwhile, the last peak on the downtrend (4380, in October) was broken to the upside as I was doing my BNN show. Its only been one day, but still – its an important development. We now need another couple of days above 4380 for confirmation.

 

Conclusion and trading plan based on Friday’s move

We will wait until Wednesday (my 3 day rule) to confirm this move. If the market stays above 4380, its likely the top BB will be tested and RSI will go higher. That might inspire a small correction. No matter. So long as 4380 holds, we will be legging into the market. One step at a time.

 

Technical Analysis 101: Free webinar!

For readers wishing to learn the basics – or get a refresher – on Technical Analysis, I am doing a MoneyShow webinar at the end of this month. This webinar will be a great tool to introduce your friends or family to Technical Analysis. Its free – so please forward this link to anyone you think would like to learn how to use Technials to invest in these rather uncertain times. Here’s the link: Richards, Keith (moneyshow.com)

6 Comments

  • Hi Keith. Do you hold that breadth has to improve for the SPY and QQQ to continue their uptrends? It’s still seriously awful on the NY composite and equal-weighted ETFs. Small caps are also seeing historic underperformance for a market recovery, but I think mega and large caps can still rise as small caps figure out their capital issues. In the same vein, does it give you pause that some of the largest banks in the world are still down 40%? I think it’s to do with rates and unrealized losses from Treasurys on their books, but it’s really not a good look for the market.

    Reply
    • Agree Paula–not a very comfortable market right now. Lousy breadth, wild swings. All adds up to a sideways market …. we need to keep our emotions in check and trade as logically as we can.

      Reply
  • Hi Keith,

    I watched your Hallowe’en Video yesterday & your Market Call earlier today. In hindsight, it was fun watching the videos. Kudos to you, your system & team for preparing ( not predicting) people like me.
    Thanks for sharing your research. Keep up the Good Work.

    Reply
  • I understand from your system that you rely on a minimum three day rule in this case Wednesday. My question is when an outside influence in this case lower US CPI drives the market quickly higher do you still leg in or do you wait another three days to see if there is a pullback. The quick rise may have lowered the possible return to less desirable levels.

    Reply
    • Good question–given the massive rally in such a short period, we are approaching this situation very cautiously. There are a couple of positions we feel have been overlooked, but largely we are not stepping in too much unless there’s a pullback per your comment

      Reply

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