We’ve gone “dead flat”
And I’ve gone to “neutral book”.
I’ve used some leveraged ETFs to go to a balanced book neither betting long nor short (but holding on to my large dividend payers).
This chart shows it’s a global “dead cat bounce” to “dead money” flat. No sense taking all the risk for no gains. Also notice that we are back at the moving average lines on the S&P 500 but at a ‘lower high’. If this fails to advance through those lines, we’re most likely headed down.
I’m left to wonder if this is the “sell in May and go away” announcement…
The most typical behaviour in an ongoing “bull market” is a brief wobble here, then a punch through the moving averages to the upside, extending the run. The alternative is a ‘rollover’ where we fail to advance beyond the last tops and where we pause a long time at the moving averages, then fall away to the downside. This feels to me more like the latter than the former.
It’s also possible a lot of folks are just a bit stunned from the “Flash Crash” and just stepping aside until the dust settles. Much as I’m going to “balanced book” with essentially equal long and short bets.
In particular notice that DMI is still “red on top” and MACD is more “going flat sideways” below the zero line, meaning ongoing slow drop, than it is “crossover to the upside” meaning return to bull market run. MACD does often “stutter” like that at panic bottoms (look back at the last one, you can see a sideways bit just before it finally turns up. But that “up turn” tends to come after a “higher low” in the RSI indicator, and so far we only have one dip in the RSI.
All in all this says “nervous time” and a ‘retest of that bottom’ is likely in the next few days. So I’m neutral book and waiting for the confirm to get back in to an upside bias bet. If we start to fall away from the moving averages and prices print a “lower high” followed by a downside run, well, then it’s time to move to a bearish bias and trade more short funds, neutralizing with leveraged long funds at the appropriate “plunge” moments. We’ll cover that strategy if the need arises.
For now, we’re at a market decision point, so we wait for a few millions of folks to make up their collective mind…
The 10 day 15 minute interval chart shows a startling flat phase. That is likely to resolve to the downside short term.
These charts can be opened to a much larger and clearer view, if desired.
Notice how the DMI / ADX line is saying “just no momentum at all”.
While those prior two charts are static, this one is a ‘live chart’. It has QQQQ and PSQ (short of QQQQ) along with IWM (Russell 2000) and RWM (short of Russell 2000) so you can see how they are inverses of each other. So if you own QQQQ, you can ‘neutralize it’ with an equal dollar amount of PSQ. (Or you could use 1/2 the dollar amount of QID that is a ‘double short’ similar to how QLD is a “double long QQQQ”. The RUT is the Russell 2000 actual index; but not a tradable ticker. You can chart it, but IWM is what you can buy. Go figure… FWIW the ticker for the ‘double long’ RUT is UWM and the double short is TWM).
Why not just sell? Because some times you have positions bought with “unsettled cash” and can not sell them for 3 days… but you don’t have to be married to them… and it’s OK to pick up a second “friend” for the party and just go neutral while you wait. Tomorrow I can sell out of which ever one is right for the resolved direction. This is called “legging in” when buying a mixed position one part at a time and “legging out” when selling it in steps. Alternatively, one “leg” may have settled, but if you sell it, that cash is ‘unsettled’ for 3 days. Easier just to ‘go neutral’ with an offsetting position (if bought with settled cash) then you can take either direction at any time via a sale and not worry about buying into that new directional trade with “unsettled cash” and being married to it for 3 days… Yeah, day trader cash timing stuff…
Oh, and say you have a nice stock or fund that is about to pay a nice dividend, but if you sell, you don’t get the dividend… Yeah, you can buy a ‘similar’ inverse acting fund and neutralize the market position while collecting the dividend. I’ll do this sometimes with my oil and gas funds. If oil is headed down, I’ll buy an “oil down double short” fund. So I’ve hedged out the oil price change risk, while still getting the dividends… It’s a nice trick to have available. If you are doing options, you can just buy a put against the stock for the same effect.