Sunday, October 11, 2015

A Bear Market Rally?

SGS Market Timer Status:   NEUTRAL 
NEUTRAL as of close of 10/8/2015
RTS Current Portfolio (2015)
Past Portfolios (2008-2014)

Is the rally in the past two weeks a bear market rally? No, it is not simply because you need a bear market to begin with in order to have a bear market rally in it. 

There is no bear market in the golden age of global ZIRP and QE.  A bear market is not allowed to exist.  If there is good economic growth (3% to 4%), which is the Fed's goal and the promise for their ZIRP and QE in the US, then there is a raging bull market.  If there is no or negative growth, then there is a market that goes sideways in a wide trading range of  +/- 10%.

Based on the recent economic data, there is no growth or at best there is anemic growth in the US economy.  Therefore,
it's reasonable to assume that SPX would very likely remain range bound between 1800 to 2200 for the next 6 to 12 months or as longs as ZIRP continues.  If the economy starts heading into a recession, then the Fed would start another around of QE and indices would probably rally up again.  

That is the Fed's game plan as it became quite evident based on the minutes of FOMC September meeting.  The Fed has no intention of ending ZRIP, not 2015 and probably not anytime in 2016.  "Free Money Party" goes on and on.  Enjoy ☺.
Where Are We Heading Longer Term (Weeks)?

SPX is overbought and chances are good that it would sell off over the course of next two weeks to test its new TUL-0 around 1885 as disappointing earnings reports pour in.

Where Are We Heading Shorter Term (Days)?

Last Wednesday SPX tested its 50 D-SMA and on Thursday and Friday closed well above it.  That is bullish and cannot be ignored.   SGS Market Timer also turned from SHORT to NEUTRAL as of close of last Thursday. Chances are good that SPX sells off early this coming week to back test its 50 D-SMA around 1990 and very likely its DTL around 1980.

My Plan:

With SGS going from SHORT to NEUTRAL, my plan is to close my short positions.  I am planning to cover one half of my short positions as SPX sells off to back test its 50 D-SMA and test its DTL.   For the second half, I am going to wait to see if SPX sells further to test its TUL-0 around 1880 to cover the 2nd half.  If SPX rallies higher, however, I'm going to cover the 2nd half should SPX takes out its recent high of 2020.


SPX: S&P 500 Index    D-SMA: Daily - Simple Moving Average
DJI: Dow Jones Industrial Index    D-EMA: Daily - Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ADL: Active Downtrend Line
OEX: S&P 100 Index    AUL: Active Uptrend Line
NDX: Nasdaq 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line  

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