In other news… the stock markets have taken a dive today. They were already down a bit, and today is getting a big whack.
Things to note:
Starting with price, notice that the two tops are the same height. That’s a double top and usually means it’s going down. Yes, I ought to have hollered about this last week and I didn’t as I was fooling around doing other things. Distracted by politics and Kavanaugh.
We’ve had, basically, 5 down days since that last top, with the present day being a very large price range with very high volume. The moving average stack is preparing to invert, but hasn’t yet. I’d expect the prices to return to the SMA stack from below to confirm this as a significant market top, so watch for that. (IF prices punch through the SMA stack and resume the rise, this is then a “dip” – but with The Fed raising rates, it is more likely a top).
Looking at the other markets, we see that SPY the S&P 500, DIA Dow Jones Industrials, and the Russel have all taken big hits too. Further down the chart, Gold and EEM the Emerging Markets ETF have been in a down trend for months.
At this point, the money will be rolling into 10 year Treasuries and short term bonds. IMHO that’s a bit early. Yes, they have higher yields now, but usually as the Fed raises rates, bonds roll off for a year or so. That needs more investigation.
MACD is ‘mouth down’ and rolled over a few days back, it is now crossing the zero line. Very negative. DMI- the red line is spiking up, also very negative.
Formally, this ought to be a “Buy the dip” moment. For a Trade, I’d do it as there is almost always a rebound / recovery day even if it is a reversal / top to the downside. Then sell at the re-touch of the SMA stack and then buy if it punches through or short if it falls away again. That’s fairly active trading.
I usually continue in trend (presently an up trend) until the SMA stack rolls over (fastest on the bottom slowest on top) and the price has tested it from below and failed to penetrate. So that would be “buy the dip” and wait. The ideal time to buy a short was back on those low volatility days at the second top. As of now, the volatility premium will be “way high”; so time to sell options, not buy them. But I’m not interested in selling calls. I suppose I could sell puts expecting a rebound to the SMA stack and drop in volatility. Basically, I’ve missed the moment to buy puts.
I’m not going to do much as I’m busy with other things and not watching as close as I ought to be watching. We’ll see if I can get focused enough to track this every day and do some trades.
There’s a fundamental strain in the market between a stellar economy and The Fed raising rates. Typically you never fight either of them, but they are now pointing two different directions. Essentially being long the market is a bet on Trump and being short is a bet on The Fed continuing to raise rates. “Never fight The Fed” is the usual market wisdom. It will also be hard to get unemployment and production higher than it is now as things ARE running so well. Decisions decisions…
So as of now the charts say “buy the dip in a bull market” and The Fed says “We’re trying to cool things off, move to bonds”. I’m voting for “buy the dip and be ready to bail at the SMA stack”…