Sunday, January 13, 2019

The 20% Crack

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must


In the last 20 years or so there have been a number of financial debacles that have resulted in a sudden and quick collapse of banks or hedge funds.  The collapse of MF Global in 2011, Long-Term Capital in 1998, or Barings Bank in 1995 are prime examples of those financial debacles.

One thing those sudden and quick financial meltdowns had in common was that, once losses in positions they held exceeded a certain level, the demise of the hedge fund or the bank became inevitable.  It was similar to a crack in a dam wall.  Once the crack grows to  a certain size, fluid dynamics laws governing the water pressure and the water flow around the crack, dedicate the collapse of the entire wall.


Since SPX bottomed at 666 in March 2009, as shown on the chart above,  every time SPX corrected 15% or higher from its recent high, the Fed or other central banks intervened indirectly to shore up major indices. Two Fridays ago on January 4, 2019, once SPX had corrected 20% from its recent all-time high, Powell, Yellen, and Bernanke assured financial markets that the Fed would not hesitate to intervene again should it become necessary.  In other words,  the Fed PUT is still in.  U.S. major indices rallied around 4% that day, they have continued their rally and as of the close of last Friday, major indices are up around 10% from their recent lows on December 26, 2018.

It seems that, post 2008-2009 Sub-Prime Crash, once the size of the crack in the Wall Street, grows to around 20%, the Fed rushes in to patch the crack at all cost.  Maybe the Fed knows something we don't, i.e. once the crack grows beyond 20%, the entire Wall Street collapses. Maybe, that's why the Fed has not and will not let any correction get larger than 20%. Maybe the Fed would be powerless in stopping the next significant correction similar to how major financial houses in 1929 could not stop the biggest stock market crash in history.

After bottoming at -1741 on December 26, SGS advanced sharply in the last six trading days.  The sharp reversal of SGS signals that there is a better than 90% chance that the lows printed on December 26 for major indices was the bottom for the recent sell-off.

Support and resistance levels for SPX for the upcoming week are shown above.   Going forward, I see three scenarios for SPX:
  • (A) Most Likely (70%) - SPX and other major indices fail to close above their 50 D-SMA's, sell-off and successfully test their recent lows (SPX 2346) with super bullish divergences in SGS, volume and indicators. Major indices then start a new bull leg to challenge their all-time highs.
  • (B) Unlikely (20%) - SPX and other major indices continue their rally, close above their 50 D-SMA's and continue higher to challenge their all-time highs.
  • (C) Very Unlikely (10%) - SPX and other major indices fail to close above their 50 D-SMA's , they sell-off, take out their recent lows (SPX 2346), and go lower to test lower support levels.

My Plan

I'm still in cash and watching the action from the sideline. I need to see at least three of five major indices (DJI, DJT, NAZ, RUT, and SPX) solidly (0.5% or higher) trade and close above their 50 D-SMA's before opening long positions.

Current Long-Term Portfolio (2019)
Past Long-Term Portfolios (2018-2008)

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Contact: opader@gmail.com



SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Sunday, January 6, 2019

plus ca change, plus c'est la meme chose

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must


Economic crisis avoidance was on full display on Friday when Ben and Janet held Jay's hands as he cried uncle.  That pleased the market.  Jay finally understood that Hands of the Fed are in no mood to be asked to return the assets they "hold" for the Fed.  Jay, like Janet and Ben before him, is a quick learner. It took him only three months and a 20% sell-off  to learn that when the global economy and the working class retirement are held as hostages, there is no negotiation.  It's a total and unconditional surrender.

The above chart shows all four sizable corrections for SPX, including the current correction, since March of 2009.  In light of what happened on Friday morning (Powell PUT is in), there is a better than 70% chance that SPX bottomed on December 26 at 2346.  There is also a 30% chance that the December 26 low would get successfully tested sometime this month.  Even if the retest of 2346 fails, there is only a slim chance that SPX trades below 2200.


After bottoming at -1741 on December 26, SGS advanced sharply in the last six trading days.  The sharp reversal of SGS signals that there is a better than 90% chance that the lows printed on December 26 for major indices was the bottom for the recent sell-off.


Support and resistance levels for SPX for the upcoming week are shown above. Short-term, there is a high chance that the rally that started on December 26 continues as SPX tests its overhead resistance levels.

My Plan

I'm still in cash and watching the action from the sideline. A weekly close above 2700 is the green light I would be looking for to open long positions in seven to 10 stocks.

Current Long-Term Portfolio (2019)
Past Long-Term Portfolios (2018-2008)

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Contact: opader@gmail.com



SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Sunday, December 30, 2018

A Bottom Or The Bottom Is Near

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must


Trading is about understanding and accessing probabilities that exist between zero and 100 percent certainties.  Take the current sell-off for example, we can state with 100% certainty that the current sell-off either ended last week or will end at some point in the future.  We can also state with 100% certainty that, at the worst, indices bottom at zero someday in the future, hopefully very far.  When and at what levels major indices bottom for the current sell-off, cannot be determined or calculated as a certainty. Using technical, fundamental analyses and common sense, it can only be predicted as a probability.

The above chart shows all four corrections for SPX, including the on-going correction, that were greater than 15% since March of 2009.  My analysis, which includes trend, breadth, and internal data, shows that, as of the close of Friday, there is a 70% chance  that SPX bottoms in early January of 2019 somewhere between 2300 and 2200 as it tests supports at its PUL-2 and PUL-1.  My analysis also leaves a 30% chance of SPX selling-off an additional 15% to 20% to test support around 1800.

SGS declined last Monday and Wednesday before heading higher on Thursday and Friday.  SGS is still deep in the SHORT territory which signals that the selling very likely continues. 

Support and resistance levels for SPX for the upcoming week are shown above. Short-term, indices are still at extreme and historic oversold levels.  There is a high chance that the rally that start last Wednesday continues into the first week of January as SPX tests resistance levels at 2550 and 2625.

My Plan

I'm in cash, and after three losing years, I'm happy that I'm closing 2018 with a double digit gain.  I'm watching how indices trade in the first couple of days of the new year and will make a decision on opening new positions in my long-term portfolio. 

Current Long-Term Portfolio (2018)
Past Long-Term Portfolios (2017-2008)

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Contact: opader@gmail.com



SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Sunday, December 23, 2018

Chaos On Steroid

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must


Political and financial chaos is exploding as Trump presidency is imploding before our very eyes.  While that implosion is taking place, the political chaos and uncertainty continues, causing indices to go lower and lower. It seems that selling would not end  until Trump is out of the White House one way or another.

Last week I wrote that Dynamic Trend Line (DTL,13 EMA) on the SPX weekly chart played a pivotal but contradictory role in the four significant corrections, including both "Dot-Com" and "Sub-Prime" crashes, since 1999. believe in January 2019, it's likely that DTL on SPX monthly chart plays the same pivotal role again  as summarized below:
  • If on January 31 SPX closes 2% or more above DTL on it's monthly chart, it would signal that there is a high (>70%) chance that the correction has run its course and SPX bottomed at the monthly low of January 2019.
  • If on January 31 SPX closes 2% or more blow its DTL on it's monthly chart, it would signal that there is a high (>70%) chance that correction continues for another year and another 35% to 40%.
I believe the chaos continues so long as Trump is in the White House.  I also believe that it is highly unlikely that Trump would be out of the White House by the end of January.  Therefore, as of now the likelihood of SPX closing below its DTL is higher than SPX closing above it; and hence the chance of indices dropping between 35% or 40% in the next 12 months is substantially higher than indices finding a bottom soon.


SGS declined significantly more last week and went deeper into the SHORT territory.  On Friday, as shown above, SGS reached a value that is the second lowest value in 20 years.  The lowest value for SGS in the last 20 years (calculated by back-testing) occurred on at the height of "Sub-Prime" financial crisis on Friday October 10, 2008.  On that day SPX found a temporary bottom and then rallied (the mother of all dead-cat bounces) from 839 to 1044 or 24.4% in three days before heading lower. SPX eventually bottomed out at 666 (Haines Bottom) on March 6, 2009.

Short-term, indices are at extreme and historic oversold levels.  They either bounce back 5% to 10% over the course of a few days or snap and crash 5% to 10% lower  in  one day. The more over-sold indices become, the higher is the chance of a single day mini-crash. 


Support and resistance levels for SPX for the upcoming week are shown above.


My Plan

Per my plan I closed all long SDS positions as SPX tested support around 2550. Of course SPX Friday's close is about 5% lower which means I left around 10% additional gain on the table. I understand that but I also have learned the hard way that trying to trade perfectly is a fool's errand.

Current Long-Term Portfolio (2018)
Past Long-Term Portfolios (2017-2008)

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Contact: opader@gmail.com



SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Sunday, December 16, 2018

Chaos Is Spiraling Out Of Control

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must


Major stock market indices continue their decline as the chaos spirals out of control in Washington. There are at least six or seven on-going criminal investigations that so far  have resulted in conviction of seven individuals who are either in  jail or waiting to be sentenced.  They include Trump's personal attorney, his presidential campaign manager, advisers, and money men. If that is not enough chaos, once the new Congress is seated, there will be at least five more congregational investigations of Trump and his family members.  

In the meantime, economies across the developed and developing world are either in a recession or slowing down as central banks implementing their quantitative tightening plans.  Selling will continue.

Since 2000, as shown on above S&P-500 (SPX) monthly chart, there have been four significant (15% or higher) corrections, including two crashes.  In those corrections, Dynamic Trend Line (DTL,13 EMA) played a pivotal but contradictory role depending on the size of the correction. In the two recent smaller corrections in 2015 and 2011, SPX bottomed out at the monthly low of the second month trading below DTL.  For 2008 and 2000 crashes, however, after SPX traded and closed below DTL for two consecutive months, it continued its decline for another year, correcting an additional 42%, in "Dot-Com Crash", and 50% in "Sub-Prime Crash".

As of the close of Friday, SPX is about 100 points or 3.7% below its DTL. There is a good chance that SPX closes below its DTL this month.  If SPX continues to sell-off and  closes below its DTL in January 2019, it would signal that the recent correction is not done and SPX could correct significantly more.  The picture is blurry and it's hard to say where indices are heading but it would clear up in mid to late January 2019.

SGS declined more last week and went deeper in SHORT territory.  That signals, in the long-term (weeks to months), there is still a high chance (> 70%) that major indices continue trading lower.

Support and resistance levels for SPX for the upcoming week are shown above. The sell-off that started on Wednesday likely continues on Monday and possibly Tuesday as SPX tests support around 2550. I expect a sizable "dead cat bounce" later in the week, probably starting shortly after the FOMC announcement and press conference on Wednesday.

My Plan

Per my plan, I opened my second (on Tuesday) and third (on Friday) long positions in SDS.  For now, my plan is to close all SDS positions as SPX trades at or near 2550, possibly on Monday or Tuesday.

Current Long-Term Portfolio (2018)
Past Long-Term Portfolios (2017-2008)

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Contact: opader@gmail.com



SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Sunday, December 9, 2018

The Beginning Of The End

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must


On Friday for the first time Federal prosecutors directly implicated Trump in two crimes in his 2016 campaign. This is the beginning of the end of the Trump presidency in my opinion.  

It's remarkable how similar the order of events is to Watergate.  Richard Nixon had better than 50% approval rating and the support of all of republicans in the Congress until in spring  of 1974 when the Watergate special prosecutor (appointed by the House after DOJ special counsel was fired by Robert Bork following Nixon's order) started releasing his findings and issuing indictments. Also in spring of 1974 Watergate hearings started in the House Judiciary Committee.  At that point, it became abundantly clear to Republicans in the Congress that Nixon was toxic and they would lose their seats in the mid-term election of 1974 with Nixon in the White House.   It still took until summer of 1974 for Republicans to march to the White House and demand Nixon's resignation.  Nixon resigned on August 9, 1974.  A month later, President Ford gave a full pardon to Nixon.

I see a similar thing happening again as history repeats itself.  An R-rated version (thanks to Stormy and Karen) of Watergate is underway now.  My main interest is what's going to happen to the stock market.  As shown in above chart, SPX corrected around 50% during Watergate (1/1973 to 10/1974) and the bulk of that correction (about 40%) occurred at the height of Watergate scandal.

As shown above, the "bottom head & shoulders" price pattern on SPX daily didn't pan out when SPX could not overcome the resistance around 2800.  Short-term, however, Indices are at extreme oversold levels.  Chances are good that we see a bounce early this week before indices resume selling.

SGS declined everyday last week and it still in SHORT territory, signalling that, in the long-term (weeks to months), there is still a high chance (> 70%) that major indices continue trading lower.

Support and resistance levels for SPX for the upcoming week are shown above. 

My Plan

On Friday, I opened my first of three positions in SDS. My plan is open my second SDS position early this coming week and the final SDS position if and when SPX takes takes out support around 2630-2620.

Current Long-Term Portfolio (2018)
Past Long-Term Portfolios (2017-2008)

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Contact: opader@gmail.com



SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Sunday, December 2, 2018

Economic Crisis Avoidance

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday Oct 5, 2018
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must


Economic Crisis Avoidance Deus ex Machina - Part I: Active Asset Price Inflation
  • Asset Price Inflation as a tool of monetary policy
  • Rate hikes to end soon
  • New large-scale asset purchases in the future
  • Crash and recession delayed
... read more 

As shown above, the "bottom head & shoulders" price pattern on SPX daily chart is still in play.  There is still a  reasonable chance that SPX rallies this week to test the Neck Line around 2810 to 2820. 

SGS advanced everyday last week but SGS is still in SHORT territory, signalling that, in the long-term (weeks to months), there is still a high chance (> 70%) that major indices continue trading lower.

Support and resistance levels for SPX for the upcoming week are shown above. 

My Plan

No change since last week, I'm still in cash and going to watch internal data as SPX trades around 2800 this week.  Again, I'm specifically looking at the number of new lows for yearly, quarterly, and monthly time frames.  If the sell-off is done and indices are to move higher to challenge their all-time highs, then the number of new lows should drop significantly in those time frames.  Otherwise, what's going on is nothing but a bear market counter-trend rally to trap bulls.

Current Long-Term Portfolio (2018)
Past Long-Term Portfolios (2017-2008)

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Contact: opader@gmail.com



SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.