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The stock market at this point has officially social distanced itself from the economy. They are not just 6 feet apart. They are 6 million miles apart. With the help of the Fed, the stock and bond markets have become a game of "greater fools". We are encouraged to jump in and buy high, because there will be a greater fool who will buy higher from us. And while we are at it, let's drink some Kool-Aid too. Here's a prime example of the "greater fools" scenario currently happening. From Wall Street Journal: “For much of the past month and a half, the yield on the benchmark 10-year U.S. Treasury note has hovered around two-thirds of a percentage point—a shade above its all-time low of around 0.5% set in March. Taken together, the low level of the 10-year yield and its stability suggest that bond investors not only hold a dreary economic outlook but also are unusually confident in that perspective, a contrast with the optimism that has carried stocks to their highest levels since early March.” So big institutional investors are persistently bearish. Meanwhile: "Last week, the smallest of options traders (those who trade 10 contracts or fewer at a time) positioned themselves to bet on a rally, buying bullish calls and selling bearish puts at a record pace." Only one of these two groups will be right. And only time will tell. But past history heavily favors big money. It would be truly wise for us "dumb money" to realize that we are just that: the dumb money that functions as the greater fools for the big money. You are probably thinking "What a depressing thought!". True. But there is no one forcing us to be the dumb money. There's only us making those decisions ourselves. As long as we are aware that we may be stepping into traps, we may have a chance of navigating around them successfully. Our personal theory about big money is this. Don't bet against them. Instead, follow their crumbs! How do we find their crumbs? In technical analysis. Big money cannot move big amount of money without leaving a trail. They are the market after all. One very important component of technical analysis is to understand the time frame of your data and projections. Low-risk high-reward (LRHR) setups exist for each time frame, but they don't cross time frames necessarily. For example, you can be bullish short term, and neutral to bearish medium term. We encourage you to read all of our analysis in all time frames. But your job is to decide which time frame you are trading in, and don't mix up our projections from one time frame with the other. Medium-term As we explained last week, medium term trade is the a trade that may last multiple weeks. For example, capturing the entire Dive1 is a medium-term trade. It lasted from 2/20 to 3/23. Or capturing all of the bear market rally is another medium-term trade. Right now the ideal medium term trade is to finish riding the bear market rally with a long position. However, this trade would only make sense for medium term if it was entered closer to 3/23. Entering long right now does not meet LRHR criteria for medium term. Here's why. SUBSCRIBE to read our full analysis and get our signal updates for $SPX $NDX SPY QQQ TQQQ IWM TNA TZA. Take advantage of our introductory low rate of just $39/month. You can cancel at any time.
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Below is an excerpt of our weekend analysis posted Sunday 5/3/20. Invest: Long Term Portfolio Starting in early February, we wrote that you might want to sell high and use asset allocation strategy to rebalance the portfolio and reduce stock exposure in long-term portfolios. We ourselves got out of all stocks in our long-term portfolio in February. Since the Down Trend started on 2/20, we recommended to stay in cash for now because the current Down Trend is not over yet. Apparently, Warren Buffet agreed with us. He revealed the following information in Berkshire annual meeting on Saturday 5/2.
So if the famous long-term investor Warren Buffett isn’t buying right now, we certainly are not deploying long-term money into the stock market just yet. If we were still holding stocks in a long-term portfolio, we would try to sell weaker stocks, just like Buffett did, to take advantage of the current higher price, before Dive2 takes off for real. SUBSCRIBE to read our full analysis and get short-term signal updates for $SPX $NDX $RUT SPY QQQ TQQQ. Take advantage of our introductory low rate of just $39/month. You can cancel at any time.
Below is an excerpt from this weekend analysis. The Overall Message The overall message from our analysis is this. We are entering key decision time, as highlighted on $SPX monthly chart at the start of this post. Most new traders obsess about the stock market going up or going down. But statistically, the market spends more time trading in a sideway range than in a directional move. This makes a lot of sense if we view the sideway range as decision time. Market participants rarely arrive at the same decision at the same time. It takes time, but eventually enough buyers step in and prices take off to the next level. Conversely, if enough sellers step in, prices will break down to the next level. Then the cycle starts all over again at the next level as they battle it out. Right now, $SPX is entering into a decision zone, as shown on the monthly chart. Bears shouldn’t count on Dive2 taking off right away. And bulls shouldn’t count on Bounce2 continuing higher and higher. SUBSCRIBE to read our full analysis and get live signal updates for $SPX $NDX $RUT SPY QQQ TQQQ. Take advantage of our introductory low rate of just $39/month. You can cancel at any time.
On Thursday 4/2/20 at 7:15 PM EST, our system dropped the highly bearish signal down to mildly bearish signal of -10. We explained to our readers that it was time to scale out of short positions. This came ahead of the weekend. Updates 7:15 PM EST - Thursday 4/2/20 SIGNAL: -10 (mildly bearish) Maximum bearishness is -55. Maximum bullishness is +55. Zero is neutral. Earlier today, we wrote: We may scale out of the short positions if the signal becomes a lot more positive, and reaches -10 or more positive (ex: -7 or -3 etc.). This is what we did after hours, once we posted at 6:22 PM EST. We scaled out of some of our short positions. Summary:
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On Tuesday 3/31/20 at 12:28 PM EST, our system had identified a bearish signal for $SPX $NDX $RUT. This signal confirmed the bearish warning issued by our system on Friday 3/27/20. The warning is: Bounce1 is over, and the Down Trend is going to resume. We posted the following updates for our members throughout the day and into the evening on Tuesday 3/31/20. Members who follow this signal had the opportunity to capture the drop that started on 3/31. Members are now alerted to new information in preparation for Friday 4/3. Updates 7:46 PM EST - Tuesday 3/31/20
At 12:28 PM today, we alerted you that the signal was reading -17, which is much more bearish relative to the reading at the start of the trading day. We mentioned that you could start partial entry of your short positions. Our system is projecting the following scenario:
Below is the updated S/R table. (Mostly we updated Resistance1 to be at today's highs.) There is a good chance that $SPX $NDX $RUT will test Support1 tomorrow Wednesday.  Updates 6:32 PM EST - Tuesday 3/31/20
The current S/R table is still valid, but we will refine and update it soon after we get some more data from futures. Updates 3:25 PM EST - Tuesday 3/31/20
A reader had asked for some ETF recommendations for betting against $SPX $NDX $RUT. They are: SPXS, SQQQ, TZA. These are short-term ETFs designed to capture a down segment within a Down Trend. They are not buy-and-hold instruments for riding the remainder of this Down Trend. Please read more about them if you are not already familiar with them. Here are some articles to start: Using SQQQ to bet against $NDX Three ETFs that rise as small caps fall Using SPXS to bet against $SPX Remember: they are like fast cars. Capable of fast ride, but also big crash. Do your research and test small if you are new to this. Updates 12:28 PM EST - Tuesday 3/31/20
If you want to start entering short, keep your initial entries small with tight stops. There is now a significant new signal after hours Thursday 4/2/20.
SUBSCRIBE to read our analysis of this signal for $SPX $NDX $RUT SPY QQQ TQQQ. Take advantage of our introductory low rate of just $39/month. You can cancel at any time. On Friday 3/27/20 at 5:00 PM EST, our system had identified a bearish signal for $SPX $NDX $RUT. This was the advanced warning that Bounce1 is over, and the Down Trend is going to resume. So we posted the following updates for our members on Friday 3/27/20 at 5:00 PM EST. Members who follow this signal had the opportunity to lock in profit from their long positions on Monday 3/30, and are capturing profit from the current down swing. Updates 5:00 PM - Friday 3/27/20 Our system has identified these are bearish signals: $SPX $NDX $RUT all formed bearish spires on their daily chart today. They ran into resistance near the highs of yesterday. $VIX $VXN have been finding support for multiple days around the 200 EMA on their 30-min charts. That's a reliable signal that they are going to rise next week. Not a guarantee, but a high probability. Market breadth dropped into very negative zone today. SQQQ (bearish inverse of TQQQ) and TZA (bearish inverse of TNA) have formed W bottom on their hourly charts. The reward:risk ratio for entering short positions against $SPX $NDX $RUT has improved a lot now that the Big Bounce is fading. Conditions are favorable for at partial entry of short positions. However, if you choose to enter short right now, you may need to be prepared for one last possible short squeeze on Monday. There is now a significant new signal as of 3/31/20.
SUBSCRIBE to read our analysis of this signal for $SPX $NDX $RUT SPY QQQ TQQQ. Take advantage of our introductory low rate of just $39/month. You can cancel at any time. On Thursday 3/19/20, our system had identified a bullish signal by $SPX and $NDX after hours. So we posted the following updates for our members. This signal accurately forecasts the arrival of the big bounce that started on 3/23 for $SPX $NDX $RUT. This is an example of the highly accurate and timely daily updates that our members receive. Updates 7:02 PM EST - Thursday 3/19/20 The Down Trend is still intact. The true final bottom is not in yet. However our system has issued a "short-term significant bounce" signal, based on the market internal indicators. The zone near Support1 is a low-risk setup to do partial entry of small positions that are long $SPX $NDX, such as SPY QQQ TQQQ. Trade small. Use a tight stop. If you keep your entry small for now, you can hold it overnight tonight. Beware that dropping below Support1 is quite bearish.   There is now a significant new signal as of 3/27/20.
SUBSCRIBE to read our analysis of this signal for $SPX $NDX $RUT SPY QQQ TQQQ. Take advantage of our introductory low rate of just $39/month. You can cancel at any time. The Big Picture and The Long Term Portfolio We received a lot of questions this week from our members. There was a common theme in the question: Is this Down Trend done yet? Are we about to start an Up Trend given the price actions at the end of the week? The answers are:
So where are we in this Down Trend? To reliably answer that, we turn to $VIX $VXN charts. In our experience, $VIX $VXN tend to follow certain recurring patterns during Down Trend or Major Pullbacks. And $SPX $NDX $RUT tend to follow these patterns too, but analyzing them is harder. So we go back and use $VIX $VXN patterns from the crash of 2008 to help guide us through this current crash. Last week, we introduced a new term “Dive”. “Dive” refers to the big down segments that constitute the core of the trend. A major Dive in a Down Trend is equivalent to a major Surge in an Up Trend. This Down Trend most likely will have 4 to 5 Dives. $SPX $NDX $RUT are likely finishing up Dive1 right now. Below is $SPX hourly chart from the crash of 2008. It shows 4 major Dives spanning a period of 6 months that comprised the entire Down Trend. (We use the hourly chart because the show the Dives better.)  The current Down Trend that started on Feb 20 is likely to experience 4 major Dives also, and may span anywhere from 6 to 8 months. Here is a projection of how the 4 Dives can unfold, and how low $SPX is likely to go during this Down Trend. Subscribe to read the rest of this article, and all the latest intraday updates for $SPX $NDX $RUT SPY QQQ TQQQ. Take advantage of our introductory low rate of just $39/month. You can cancel at any time. We have been posting lots of intraday and after hour updates.
Subscribe to read all the latest analysis, as well as our highly useful table of support and resistance levels for $SPX $NDX $RUT SPY QQQ TQQQ. Take advantage of our introductory low rate of just $39/month. You can unsubscribe at any time. The Big Picture and The Long Term Portfolio Tonight the Fed brought out their big weapons, but they failed to ignite a burst of buying. Instead, market responded by sending futures sharply down, and triggered limit down in the process. QE is a stop-gap measure to keep the financial system from a meltdown. But QE isn't a vaccine against the coronavirus. The Fed cannot stop social distancing, or lockdown, or quarantine. Until human activities can flow freely, economic growth cannot happen. In fact, the opposite is happening. We are seeing sudden and massive economic contractions. It is the equivalent of an economic heart attack. Back in early February, we shared this weekly chart with you, explaining that stocks are very overbought and are vulnerable to a serious sell-off. We pointed out that $SPX could drop as low as the 200-week EMA.  At the time the projection was greeted with skepticism, as the stock market was seemingly reaching an all-time high every day. It would mean big drop from 3385 to 2660. Fast forward 5 weeks, and here we are. On Thursday March 12, $SPX spiraled down to a low of 2479. Let’s zoom out on the monthly chart and take a look at how low prices can potentially go from here. Subscribe to read the full article, and get access to our daily trading plans immediately. Subscribe now and take advantage of our introductory low rate of only $39 per month. |
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