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)


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.