Halloween Special: How scary are the US and Canadian markets right now

November 3, 2023No Comments

Hello and welcome once again to the Smart Money Dumb Money Show, and I am your host as usual, Keith Richards. I’m President and Chief Portfolio Manager at ValueTrend Wealth Management and I’m a Technical Analyst. Now, today is the 26th of October. I always record these videos about a week before they’re published, so by the time you’re seeing this, it’s probably at or near Halloween. So, I brought along my friend, and her name is Sheila. And Sheila has noted along with myself that the markets are a little bit scary now. She’s been hanging around my office as you can see for a while, and she and I wanted to talk about the possibility of the markets not being as scary as they appear. What do you think, Sheila? (Evil witch cackle.)


Okay, so Sheila’s opinion is that this market’s still pretty rough. She’s acting like we’re not going to see an end to this bear market. I’m going to ask Sheila to step out of the picture for a moment and we’re going to go right to the charts and see if we can find out if the markets are as scary as Sheila seems to feel.


So, let’s get started with that. We’re going to share screen and look at the S&P 500, the TSX, and the NASDAQ to see where we might be. And again, this is being recorded about a week before you’re seeing it, so I’m hesitant to make predictions about how scary the markets are at this point, but I do want to point out at least from the moment in time that I’m recording this, how things might end up. So, I’m going to go to share screen and I’m going to go right to the S&P 500 chart, which is I’m looking on stock charts right now and I’m applying Bollinger Bands, Stochastics and RSI on a daily chart.


Now what we’re doing here is we are looking at the very near-term possibilities, and possibly by the time you’re watching this, my comments will have already been enacted. So, I’ll give you my perspective as of the 26th of October, but I’ll also fill it in with some concepts of where we could end up going as we enter into November and on. Now, first of all, you guys know the seasonality is favourable after around the first week of November and we’re just coming into that period right now. You know that I’ve been talking about 4,200 as support on the S&P 500. That’s this big black line right here, horizontal line, and there’s 4,200 and the market briefly as I’ve been recording this has spiked below the 4,200. Now you guys know my rule, which is you wait an absolute minimum of three days before you panic or trade on a breakout or a breakdown.


So, we’re now, as I speak on the 26th, just entering into the second day where it’s been below 4,200, it’s way too early for me to sell more. You guys know that I have been holding cash and I’ve talked very openly about that for several months – really for most of the summer – and that’s been the summer, so it’s not been a bad thing to do. And I’m just wondering what the next step will be for the market coming into the more favourably seasonal part of the year. Now, I’m going to report my barometer readings probably right around the time you’re watching this, so you’ll want to check that blog out where I will look at sentiment and that kind of thing because that will give us vital clues as to the macro picture of the market. But, if we look at this daily chart, I’ve applied some very near-term indicators and one is the Bollinger Bands indicator, which is really just volatility bands.


So, we have a moving average in the middle and then two standard deviations off of that short-term moving average. Well, what I want to do is suggest that if you get a lineup of a lower Bollinger Band touch and a move in the very quick oscillator known as Stochastics to an oversold position, which we have right now, and you’re going to move to a very oversold position of RSI, which we’re pretty much at right now, you tend to get a move back up. Now that move back up may not last long, and that’s really the question, but take a look here. You got a move to the lower end of the Bollinger. You’ve got a breakdown in the Stochastics below the oversold trigger at 20, and you had a move very close to that byline right around where we are right now on our side.


So over and over we can look across this chart, you’ll find that plays true over and over, and the opposite is true as well, by the way. When you get a move to the top of the Bollinger Band and an overbought signal on Stochastics and an overbought (or near overbought) signal on RSI, you almost always get some sort of a correction. So, you are here, we are at the bottom of the Bollinger Band. We are at the sell, or I should say oversold level on Stochastics, and we are very close to that oversold line on RSI. We’re effectively at that point that there should be one of these guys, in other words, some sort of a rally. Now in the recent past, which is really just since July, the market’s been in a down channel. I didn’t draw the trend lines, but you can see I’ve drawn them on my previous blogs.


You can see the down channel. If we get what could be expected to be a bounce off of the Bollinger because of the oversold signals and the Bollinger Band itself, you will see a support at 4,200 being held, and that’s good news. But, the only real true positive proof that this downtrend as signified by this down channel is over. So, how do we tell when it’s over? Well, it’s over when we break the last peak because it’s been a series of lower highs and lower lows, and you guys know how that works. That’s what the definition of a downtrend is. Lower highs and lower lows, the definition of an uptrend is higher highs and higher lows. Okay, well, we need to take out the last low and the last high. The best indication is going to be a takeout at the last high because that’s going to prove that the trend itself is broken.


So, we could get a bounce and it might just move up to 4,350 or something, which would be still below the last high, which was closer to 44. I’m not making a prediction, I’m just suggesting that things are pretty oversold and maybe by the time you’re watching this video, you’re already witnessing that bounce. So, I am not predicting. I am preparing that if we get that bounce, we have to be watching for the last high, which was closer to 4,400 to break before the real bull market view comes into play. So, it’s really up in the air still, even if we get a bounce off of the recent selloff, and there are indications on this chart that we should get that bounce. Again, the question is: “Will it last?” And I can’t tell you that, but if we do get a break of the last high, let’s call it 4,400, you’re going to see a probable reason for the market to go much higher over the next few months, and it’s really in the cards right now.

I guess at the point of this video, I am suggesting that if it hasn’t happened by the time you’re watching this current video a week from now after I’ve recorded it, if it hasn’t bounced, then I would be surprised. I think we’re going to get some sort of a bounce. So, there you go. I’ll take a look at the TSX. Now, the problem with the TSX is it is not the same as when we look at the US markets or many world indices. In fact, it’s been absolutely sideways for the better part of two years. This is an 18-month chart we’re looking at, but you can see it’s just up and down like a toilet seat and it’s a tradable market. The market tends to show oversold signs like it is right now. It’s getting close to that Bollinger Band. It’s getting close to that oversold hook on Stochastics.


Wouldn’t surprise me that we get a bounce on the TSX as well, but I don’t have a lot of hope for it moving into a bull market. I have a blog coming out probably by the time you see this video that’s going to talk about the problems with the Canadian market, and you can review that blog for more reasons why I don’t think it’ll crack its old highs of around 20,800 or so. But, at least for the time being, I think there’s a decent potential for a tradable rally coming soon. The final thing is the NASDAQ. The NASDAQ has really been hammered by the recent movement, and that’s because they’ve been the one that moved up the fastest. They got the most overbought and they’re also very rate-sensitive, and that’s been one of the big issues right now. A lot of the earnings have come out this week while I record, and some of them have been good, some of them have been bad, for the tech-orientated stocks.

So, it’s really a mug’s game trying to figure out a game, just like I addressed with the S&P 500, what’s going to happen – after maybe a short-term rally that the Bollinger and Stochastics and RSI are suggesting we’re going to get? We really need to take out the last peak, so that’s about 13,600 or so, on the NASDAQ. So, keep these in mind when we look at the markets.

Are they as scary as my friend was suggesting? Well, yes and no. There’s definitely a downtrend on the S&P and the NASDAQ, and you’ll see that on many of the world indices as well. I do feel that if we break those last peaks on the daily chart that I indicated on the charts I’ve just shown you; we could be back to a very good market in the coming months.


Will I predict that’s going to happen? No. I’m just going to react to what happens. The positives are, that we are coming into the seasonally strong period, so I’ll keep my fingers crossed for all of us, and if you are like me and holding lots of cash, there could be a massive opportunity coming.


Just as a bit of insight, I will leave you with my own strategy, which is: if we get this bounce in the next week or so, again, by the time you watch this video, I will probably leg a little bit of my cash back into the market, but it won’t be the substantial amount of cash that I hope to put in until we take out that last peak on the daily chart. I may take a ‘toe-in-the-water’ approach and buy a couple of stocks that we like for various reasons, but the real proof will be when that downtrend channel on the daily chart ends. High probability of a near–term bounce.


Will it last?


That’s the scary question, isn’t it? Happy Halloween.


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