The playbook

Lots of questions are coming in regarding how I might play the current market. I’ll start off by quoting a reply (with some minor edits) I gave to a reader named Chris as to how I am strategizing right now. Chris’s question came about after last week’s blog regarding the overbought market condition:

“Any pullback that brings you into the RSI/stochastics mid-range becomes attractive. You never know how far a pullback goes, so there isn’t an absolute rule here. I can only tell you how we do things. If we see support held at the 2018 longer termed support levels around 2540-ish, and a deep oversold oscillator sell with a hook up as markets bounce from about 2540–we might go all in. But if we get to, say, only 2600 and it looks like not much more downside momentum is happening, we will buy with 1/3rd or 1/2 of the cash.

From there, we see what happens. A not-too-deep correction followed by a little hook could still turn down on you–or it could continue higher…so we take a middle of the road approach by legging in. We may buy as it rallies, or wait.
I’m patient. The downside of our approach is missing out and underperforming a bit. I don’t care. I hate losing money more than I hate missing the first part of the move.”

 

Current picture

So…where are we now? The chart below is a neartermed view of the S&P 500. The market is overbought on the daily chart via moneyflow momentum (top pane), stochastics and RSI. Longer termed momentum indicator, MACD, looks fine. Cumulative moneyflow is OK too. The chart also shows us that major 2018 support of 2580 (which becomes resistance) has been blown through. The recent overbought signals arrived in time for a test of minor resistance (former support) near 2640. It’s no surprise to see a bit of selloff. I have further reduced our equity position in the ValueTrend Equity Platform – we are now over 30% cash. Having said that, I do not expect to hold the cash for too much longer – assuming a successful test of support in the coming days. More on that thought below.

 

Conclusion

So far, the market remains intact. It is probable that a pullback to near 2580 – given the oversold hooks we have seen – is in the cards. It is possible that a further test of 2540 might be seen, but that is best left to discuss only if 2580 is taken out. My stop remains at a price drop below 2540 for 3 days. If that occurs, and I am not making any predictions here, my thoughts will be that we are indeed entering into the 3-staged bear market pattern discussed here.

To reiterate my comment to Chris…I’m patient. The downside of our approach is missing out and underperforming a bit. I don’t care. I hate losing money more than I hate missing the first part of the move.

 

Keith on Bloomberg/BNN TV Thursday January 24th, 2019 at 6:00pm

Keith appears regularly on BNN Bloomberg MarketCall to answer viewer questions on the technical analysis of stock trends, and to provide unique insights on the factors of technical analysis used in successful investment management. (Note: Times and Dates may be subject to change)

If you have questions about the technical analysis of stock trends for individual stocks, be sure to phone in with your questions 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]

 

Are you in Orlando in February?

If you are in Florida as a visitor, a snowbird, or as a resident, you might like to attend the MoneyShow. I’ll be speaking at the Orlando MoneyShow on Feb 8th at 3:00pm at the Omni Resort at Championsgate. If you haven’t been to that resort, it’s quite lovely–and parking is free! The link below references my talk:

KeithRichards.OrlandoMoneyShow.com

13 Comments

  • Hello Keith:

    This question does not really relate to a specific posting, I’m just looking for peace of mind.
    On Nov 30, 2018 I sold shares of BCE for $57.11. When I look at the stockcharts.com daily chart for BCE, they show BCE reaching a high of $56.69.
    I’m perplexed. I would appreciate any thoughts you may have.

    Reply
    • I’ll guess that you may be looking at an intra day high not recorded on stockcharts–could be they get data from tSX but not from their Alpha exchange -perhaps the trade went though on Alpha?-I don’t know for sure Bob but those are my guesses

      Reply
      • Hi Bob and Keith,

        it is because Stockcharts adjusts for dividends and compensate with volume(I,d like Keith to explain that one to us ; )

        If you want to see unadjusted data put a _ in front of your ticker. Ex. _BCE.TO

        HTH

        Claude
        Montreal

        Reply
        • Yes I have commented on this before. Always use the underscore for high dividend stocks to get the true support resistance and trend lines

          Reply
  • Thanks Keith! Keep up the great work. You have really helped me over the last 5 years! Cheers!

    Reply
    • Really very happy to hear that Chris–its my passion to spread the word on TA

      Reply
  • Hello Keith,
    Charting sure takes the emotion out of investing, thank you.
    It looks as though the S&P 500 has reached a ceiling resistance level 2670 or so. It seems everyone is scared to add new money to this market. I do not see an catalyst for this market to move higher. I do see many negatives on the horizon. I might add I find it very troubling how Larry Kudlow & Trump are playing it up for the markets almost on a daily basis. Or bashing the Fed in tweets. Something is very suspicious about how they both are so focused on the daily moves of the stock market. I get the feeling big Wall street firms have their hands in both their pockets, in one way or another. One final note, I still get a good laugh on how the market rallied when Trump tweeted dinner with President Xi when very well. Was that dumb money or smart money running up the market ?!? In time, everyone will realize this Trade war will last for years. I do expect the S&P 500 to go lower than 2375 sometime this year. The big players need to get this market much, much lower in order for them to add billions of dollars for another long term bull market to start.

    Reply
    • I totally agree with you re the emotional by-pass that charting gives us. It really doesn’t matter what our opinion is on the future–we can just go with the flow.

      Reply
  • Hi Keith,
    As January goes, so does the rest of the year. I think we are missing out on an incredible rally which is on it’s forth week. I will be buying in. There will be no pullback. Volume & brefth are expanding. Time to get in. I regret sitting in cash since November.

    Reply
  • Hi Keith, I love your Blog. I generally don’t ask specific questions of any advisor as I do lots and lots of research, but here is one if you don’t mind as I can’t find anyone who is addressing this. With a few rumours of Amazon getting involved in convenience stores/gas stations, why is Alimentation Couche-Tard under pressure? It is not like Amazon can start this process from scratch as they are not making any more real estate. Wouldn’t you think they would be looking to buy someone (ie. Whole Foods), so wouldn’t Couche-Tard be perhaps be a buy target? (or perhaps they are too big)

    Reply
    • Steve–that is a fundamental type question–so I think you want to ask a good fundamental analyst on the BNN MarketCall shows
      I’m strictly a chart guy

      Reply
  • Interesting to see how different the bnn guests are on views regarding the market and when to buy. Just last week a market call guest was saying if you have capital to deploy don’t wait for a perfect time to get in and to ignore the short term moves of the market.

    Reply
    • Yes–and that’s what makes a market (many opinions)!
      I never knock someone else’s opinion. After all- nobody knows exactly how things will play out. You merely follow your system and play the odds.

      Reply

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