About a week ago, we got a neartermed timing model “sell signal”. This lines up with the “cautious” reading I got from the more macro-viewing Bear-o-meter on February 4th https://www.valuetrend.ca/bear-o-meter-drops-to-cautious-zone/
Below is the chart of my neartermed timing system signalling a sell. This system, which I have posted numerous times on this blog, is pretty short termed in nature. It only gives directional signals for very short termed moves. These moves might only last a few days or a couple of weeks. Thus, I use my neartermed timing model as a refining tool – set within a larger trend analysis, and taking into the risk that the Bear-o-meter implies for general market conditions.
The neartermed timing model looks at concurrent overbought or oversold signals on a daily chart via:
- A touch of the upper (overbought) Bollinger Band or lower (oversold) Bollinger Band
- A move above the overbought RSI line (70) or oversold RSI line (30)
- A Move above and hook (crossing of the lines) of the full stochastics indicator
All three of these parameters must happen simultaneously as either overbought or oversold to warrant a buy (oversold) or sell (oversold) signal. Again, its likely the signal will only tell us the probability of a move in the very near term. So its not a tool to use to make big decisions. It can help us refine our timing within our greater analysis.
Against the backdrop of a neartermed overbought signal (vertical red line on chart indicating overbought on all three indicators simultaneously) over a week ago—I got the Bear-o-meter signal as noted above. So I raised some cash. We’re at 40% cash in the ValueTrend Equity Platform.
What will make me buy back in?
The chart below shows us that the S&P 500 is attempting to blow through its 200 day SMA. Its been above that SMA for one day so far. The market might prove to be breaking out if it stays above this line (2750) for a couple more days. Even more important would be a break above 2800—which is a pretty strong point of resistance. You can see how that price point (2800) failed three times in the last quarter of 2018. So, I might be tempted to buy a little if the S&P stays over its 200 day SMA. I’d be tempted to go all in if it breaks 2800.
Conversely, I might be tempted to go all in on a successful retest of 2650. That’s a pretty nice level of support – you can see how – after each failed test of resistance at 2800 in 2018 – the SPX came back to bounce off of 2650. I’m convinced a retest of that price would hold.
Both of these conditions (a break through 2750, then break though 2800…OR…a test of 2650) would be technically positive.
That’s it for now. I’ll be back from Florida next week. Meanwhile, I am checking the site for comments as I can, so please don’t hesitate to post your comments or questions below.