Sunday, April 5, 2020

In A Recession, Indices Suffer

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

Trading is about understanding and correctly assessing probabilities that exist between zero and one hundred percent certainties. There are not many certainties in trading, or in life for that matter, but one of those certainties is that in a recession, indices suffer. Considering the fact that the US economy has never faced a near total shut-down in the last 150 years, it is impossible to correctly predict how severe of a recession we are facing. The best case scenario, in my opinion, is that the economy goes through a typical cyclic recession, lasting about seven quarters. There is a likely chance that the US economy entered into a recession in 2020-Q1, so we could start seeing positive economic data sometime in mid to late 2021. The market is about one or two quarters ahead of the economy; therefore, indices won't bottom until sometime in early to mid 2021.

Under the best case scenario, SPX could correct 50% to 60% from its all-time high to find support around 1800 to 1700 sometime in early to mid 2021. Under the worst case scenario, aka "Financial Armageddon, The Collapse Of US Dollar", SPX could effectively become zero as financial markets are ordered closed indefinitely.

SGS continued to advance higher everyday last week, signaling that a temporary bottom was reached last Monday for major US indices.  If SGS levels off in the next few trading days, there would be a good chance that indices go sideways for an extended period, possibly a few weeks to a couple of months.

Support and resistance levels for SPX for this week are shown above.  

My Plan

Last week on Thursday, I opened my first of three short positions.  I bought SDS and RWM.  My plan is to add to my short positions sometime this 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.