Sunday, November 18, 2018

Fed's Next Move

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

The U.S. Major indices, at their recent lows late last month, had corrected on average about 15% from their all-time highs in September.  However, in the last two weeks, major indices have recovered between 1/3 to 1/2 of their losses, and at least for now, they have avoided entering into a bear market when major indices drop 20% or more from their 52 week highs. 

The question before the Fed is whether  or not the recent sell-off in the US equity markets is signalling that the U.S. economy is going to follow most of world's economies and slow down significantly.  The correct or incorrect answer to that question will dictate the Fed's next move for interest rates.  If the Fed decides that the U.S. GPD is continuing to grow at a moderate to a high rate (3% to 4%), then the Fed very likely would stay with their current plan to increase  rates next month and in 2019.  Multiple rate hikes would push major indices considerably lower.

As shown above, SPX seems to be forming a "bottom head & shoulders" price pattern on its daily chart.  At this point there is a high chance that SPX rallies early this week to test the Neck Line around 2810 to 2820.  It's difficult to predict what would happen around the Neck Line.  The picture becomes clear once SPX reaches the Neck Line and trades around it.

SGS declined early last week but advanced on Thursday and Friday.  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

I was expecting a panic selling event last week but it didn't happen. On Wednesday and Friday, I closed my long SPXU positions.  I'm in cash and going to watch internal data as SPX trades around 2815-2820 early this week.  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)


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.