Sunday, March 22, 2020

The Only Thing We Have To Fear Is Fear Itself

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

sgs-st Market Timer Status: 

sgs-st is a Short-Term (hours to days) Timer

"The only thing we have to fear is fear itself". Those 10 words were uttered by one of our greatest presidents during one of the darkest periods of the world history. I can't think of anything that could ring more true now as we confront a virus. A virus that we know, where it came from, and how it spreads. In a few weeks, a therapeutic antiviral or antibody treatment will be become available to stop those infected, who have a compromised immune system or other illnesses, from dying. In the meantime, social distancing continues to dramatically reduce the spread of the virus.

Unfortunately, the federal leadership to confront the pandemic is just not there. The first and most important pillar of leadership is honesty. Instead we have a pathological lair at the helm. His non-stop lying forces other federal officials to lie to cover his lies. A viral pandemic cannot be stopped by lies.

Fortunately New York, California, and Washington State Governors are successfully leading their states, and the nation, to put in place measures to stop the exponential spread of the virus. In the meantime, the Federal Reserve has taken important steps to make sure that the US and global financial systems continue to function. Also, fiscal policies are coming to prop up individual households and businesses.

Economic and financial markets recovery will surely be slow and take time but predicting "the greatest depression ever ... tens of millions will die in the US ... Gilead is coming" is pure fear mongering by those who want to profit from their propaganda.

SGS declined more on Monday and Tuesday last week. On Wednesday, as indices hit their lows since their recent or all-time highs, SGS put in its lowest value since 1990.  On Thursday and Friday, however, SGS advanced higher as indices sold-off again on Friday and nearly matched Wednesday lows.  

The divergence by SGS and other indicators on Thursday and Friday is extremely bullish and signals that there is a high likelihood that selling was exhausted on Friday.  There is a good chance that a relief or short-covering rally is on its way.

Support and resistance levels for SPX for this week are shown above.  SPX, from its all-time high (3393) on February 19 to its recent low (2280) on March 19 corrected 32.8% in a month (21 trading days). The velocity of the sell-off is about -1.5% per trading day over the course of a month. That is simply insane and there is no parallel for it since the great stock market crash of 1929.

It's hard to say how far indices sell-off in the next three to six months, or however long it takes to recover from the pandemic. In the best case scenario, SPX could correct to around 2000 (another 13%).  In the worst case scenario, SPX could correct to around 1700 (another 26%).

My Plan

sgs-st is stilll neutral (over-sold triggered) but indices are extremely over-sold.  I expected a sizable bounce last Monday and Tuesday.  It didn't happened and indices sold-off more.  Needless to say that I jumped the gun before looking for a significant and meaningful bullish divergence.

A significant and meaningful bullish divergence was put in on Thursday, Friday and I did 50% of my last buy of three buys. I bought QQQ prior to close on Friday.  My plan is to close all long positions into the expected bounce.  My stop-loss is a lower (lower than last Wednesday's low) close for SPY sometime early next week.


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.