Monday, February 17, 2020

Measuring Fear And Complacency

SGS  Market Timer Status:  LONG 
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

sgs-st Market Timer Status:  neutral 
sgs-st is a Short-Term (hours to days) Timer

Similar to VIX, SGS market timer is a good yard stick to gauge how fearful or compliant market participants are, and when plotted over time,  SGS  shows how their fear or complacency is changing.  The value of SGS and its trend is also a good predictor of the future direction of major indices.

SGS advanced last week and confirmed major indices rallying higher.  

 Reviewing values of SGS since 1980, I found its record low and when that record low occurred highly significant.  SGS put in its lowest value (-1965) on October 10, 2008 which was one of the most fearful days, if not the most fearful day, in financial markets since 1929. Interestingly, the second lowest value of SGS (-1741) happened on December 26, 2018.  I believe had not been for the intervention of the Fed on that day (which was later acknowledged in the unrepresented news conference given by Powell and his immediate predecessor Yellen, and Bernanke on January 4, 2019) financial markets worldwide would have crashed and SGS would have put in a new all-time record low.  On January 4, 2019, the Fed unequally said that the Fed had subscribed to the Modern Monitory Theory and "the Fed put" for the US financial markets was in and would remain in for the foreseeable future.  So long as that policy remains the law of the financial land, indices have no place to go but higher.

From 2015 to 2017, I dived deeply in the Elliot Wave (EW) analysis in search of a leading market timer.  I paid the price for relying on EW, getting ahead of the market, and going too deep into the weeds with Elliot Wave for my trading.  I realized later that EW is useless and could to lead to substantial losses when used for trading.  EW, however, is insightful when it is viewed from "30,000 feet", i.e on monthly and weekly charts.
Many EW true believers are now looking for a 40% to 60% correction.  They are looking for  what they call "Cycle 2 of Super Cycle 3".  I believe, as shown on the SPX monthly chart above, the Cycle 2 correction they're waiting for, occurred in late 2018 when SPX corrected 23% and SGS put in its second lowest value of the last 40 years.  That correction would had been much deeper had not been for the Fed intervention.
Support and resistance levels for SPX for this week are shown above.
My Plan

sgs-st is stilll neutral and I'm in cash and waiting for the next sgs-st signal.

Current Long-Term Portfolio

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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.

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