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)


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.