I may post another blog later this week, but I thought readers might appreciate a quick update on markets, given the beginning of the post-inauguration “Trump-dump” that I have noted as a potential several times on this blogspace.
FYI, we raised 18% cash last week in anticipation of such a potential. It does appear that the market has begun to soften at this point.
The obvious question on everyone’s mind right now is…how low can it go? To answer that question, let’s look at two charts of the S&P500. The first chart is a very short termed daily chart – featuring the last 30 days. On it, you will see the recent consolidation pattern, followed by a breakout (on a largely solid white candle, meaning there was a pretty straight-up move on that day), followed by a couple of days above the breakout point, then a failure. Some technical people like to call such a move an “Island Reversal”—simply because of the gap up, and gap down in prices surrounding those few days after the breakout. Such movements are thought to be short term bearish. Added to the negative structure of that occurrence is a hammer formation that occurred yesterday – Monday January 30 (high open, lower close with a long wick below). This candle suggests that participants were more bearish during the day than the close implies. The fact that it occurred below the “island” suggests a bit more downside to come. My first target might be to about 2260 – which is the bottom of the prior trading range.
The chart below is one that I have been notating and posting for a while now. The last time I covered it on this blog, you can see that I noted the divergence in momentum indicators. Here is the blog – called “Sell the inauguration” where I also noted the bearish smart/dumb money pattern.
Should my near term target of 2260 on the S&P500 fail, you might find the noted lid of 2180 as the next reasonable target down. Note that we remain in a longer term bull pattern, as seen by the 200 day MA and the higher highs and lows in the major pattern.
All in, February can be a bit choppy for the markets. But nearing the end of that month, we typically find a bottom and go on to experience an average return of somewhere near 4% into May (according to equityclock and Thackray guides). Brooke Thackray just published a 1-minute video on the seasonal and technical patterns for February – his research tends to agree with my prognosis. Click here to view it.
Given the above, it is my intention to begin redeploying my cash as opportunities present themselves in the coming weeks. I am keeping an eye on the targets noted above for potential entry points.
Keith Speaking in Toronto on Saturday Feb 4th at 11:00AM
I’ve been invited to conduct a workshop on the basics of my methodology for trading stocks. Readers are welcome to attend. Details below:
5700 Yonge Street
Toronto, ON M2M 4K2
11:00 AM – 12:30 PM EST
Here is the link: – bit.ly/TorontoMeetup
Keith on BNN “MarketCall Tonight” Next Monday Feb 6th at 6:00PM
Phone in with your questions on technical analysis for Keith during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to [email protected]
Hi Keith, I hate being out of the market. What do you think about rotating in and out of ZLB and XIU seasonaly. If you like the idea what dates would you use?
You could do that with the “best six months” strategy–XIU for the “good” months (Nov – May), then ZLB for the “bad” months (May-Nov)
Utilities could also be used for the summer–similar seasonal patterns
One comment I’d like to make is that the downward line you draw at the end of the cumulative money flow doesn’t consider the last increase in money flow (last green bump). It cuts through it. You could draw an upward line if you use that last CMF higher high. To me, it looks more like like a sideways CMF as opposed to a downward move.
Even if the stock indexes trends lines look good, I can’t fight the feeling that the market can’t go much higher, since at the valuations we have, “value” investors aren’t there to push this higher. Plus the Trump uncertainties. I might regret letting this “feeling” interfere in my positioning, but nevertheless, I’m sitting on my hands, with 15% in cash.
Hey Matt-thanks for the comment-The most recent action on that line is still higher (very small down bump in the past week)–the general trend is bullish–I worry less about drawing a perfect line from trough to trough on that indicator than basically noting that the highs are getting higher. It’s a long termed indicator – not a short indicator.
Like you, I am holding some cash–as noted in the blog.
Your 3 day rule worked liked a charm… after the breakout the next 2 days were inside days on the S&P 500 and price could not hold. I have been largely out of the market since mid-December. I recently hedged existing positions with some HUV.to for the short term.
Silver is looking a interesting and equityclock indicates a positive seasonal period. Are you considering it?
P.S. For fun, I have started testing Ichmoku cloud analysis (in conjunction with my regular chart analysis similar to your teaching). Just curious what you think of Ichmoku?
I am ignorant on Ichmoku cloud analysis. Hap Sneddon over at Castlemore likes it – you might ask him how he uses it.
Silver –I don’t hold silver, but have indirect exposure to a wide base of metals though an equity.
Re the VIX trade–be nimble on this! It is not to be held for too long!
Hi Keith, enjoy reading your blog and watching you on BNN. Do you have any plans to offer a seminar in Calgary at some future date ? Cheers, Bernie.
I don’t come out to Calgary often (last time there was 20 years ago!) but I do some CSTA (Canadian Society of Technical Analysts) talks via conference calls for the west coast chapters. If you are not a member–I’d recommend finding the local chapter and joining–anyone can, and you get to hear from lots of TA speakers. If you join–you can ask the residing president to ask me to conduct a conference call workshop. Alternatively, if you belong to an investment club (like Probus–something else you can look up in your area) we can set something up for them–what we usually do is go through a power point with my charts that one of the members puts on a screen for the group and I speak to the slides–and have a question period as well as open questions during the talk.