Signals & Trading Plan for Friday 1/31/20

Why are we bearish?
The real reason why stock prices are dropping is not due to the coronavirus.   It's because the Fed is taking away the easy money.   The Fed recently reduced its total holding of repo contracts by $14.3 billion.  In the repo market, that's a big enough number for participants to start feeling the effects of liquidity drying up.  And the Fed has plans to steadily reduce its holdings even more.

Lack of liquidity is the number one reason why market sells off.   And easy money is the number one reason why market takes off. 

So when the Fed takes away the easy money, the good times are essentially over.   Sooner or later, the bullish rise will pause.   And given that $SPX $NDX have surged so high in the last 4 months, the drop will be rather painful.

So while you may find setups to successfully trade long positions based on $SPX $NDX right now, we caution you from deploying large chunks of your assets into the market at this time.  Hoping that $SPX $NDX will surge to more and more all-time highs may bring you a lot of stress.

The full article covers:
Market Internal Indicators

• Volatility & complacency
• Market breadth
• Level of bullishness
• Overbought / oversold levels

Short-term Support & Resistance Levels

• For $SPX $NDX $RUT SPY QQQ TQQQ

Market Projections

• For long-term portfolio
• For short-term trades

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