Markets Dive Day

In other news… the stock markets have taken a dive today. They were already down a bit, and today is getting a big whack.

Nasdaq vs other markets 1 year daily charts 10 Oct 2018

Nasdaq vs other markets 1 year daily charts 10 Oct 2018

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”…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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2 Responses to Markets Dive Day

  1. John F. Hultquist says:

    get focused enough to track this every day

    I found out about 12 years ago that I could not do the above.
    There are too many interesting things to do, while other folks with researchers to help,
    get paid well to stay focused.
    If I want to be out of touch for a day, or 2, or 3, I go.
    For us now, it is stock and bond mutual funds.
    In mid-Sept I did, finally, get our allocation to stocks below 50%.

    I will have to check to see what a 3+% down day did to the new allocation.

  2. Larry Ledwick says:

    I think you will find that after catastrophic hurricanes there is a short sell off as lots of investors and insurance companies raise money for reconstruction. The money for all those pay outs have to come from somewhere and since most insurance companies hold large investment portfolios it would be natural for them to liquidate a bit in anticipation of paying out a few billion dollars in payouts. Likewise companies that expect to take a casualty loss will build a cash cushion so the can recover and get back in business as quickly as possible. The good news is that the money stays in the economy and gets paid out to tradesmen who will fix all the damage and to suppliers who provide materials for reconstruction and mitigation of damages.

    I have not tracked actual numbers but I have seen this before after major disasters.

    Not to mention folks locking in value expecting some stocks to fall due to company financials taking a hit due to the damages.

    A month from now lots of workers and suppliers will be making record earnings as they work long hours to get things glued back together.

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