Tuesday, February 20, 2018

Markets on the brink

IMO we have a date with 2180 on the S&P 500 very very soon -- within a week.  That's what a wave 3 point-of-recognition panic sell means for us here.  The Fed needs to play catch-up on their balance sheet plans in what remains of February.

It also means we collapse back to the 1000 level before the All-Star Game.  Don't worry, they'll announce a significant policy shift at the September Fed meeting that will bring back the animal spirits once again.

W2 to 2180 EOM February


Christian Gustafson said...

The rollover into W3 starts right after April opex.

Kevin Wilde said...

My patterning says we are in the B wave of an A-B-C wave 2, thus another four days of rally to come following the current modest pullback. Then we face a royal test. Back in 2007 topping process then B wave went all the way down to retest the wave 1 lows, before coming all the way back to wave A high (here.) So I'm watching for that too, though most like the SP, Industrials, RUT, all have to close 4 days ABOVE the 50 day moving averages to pull all of the bull money ahead of the crash (attempt.) That may leave the NAZ and semis near or at new highs, while everything else falls short, setting the classic negative divergence "tell." The risk is Christian is right and we slide into bear misery without any further topping process.

T.Berry said...

great call

Kevin Wilde said...

OK, Christian, you win:

Just wrote this to me subscribers:

‘Today’s rally that failed at key resistance is very worrisome and we are taking defensive steps at the open tomorrow.’

The trend remains up, so remaining net long the stock market remains called for. However, risk is extreme – especially after today’s hard reversal at key resistance – thus we are selling the positions we added at the lows a couple of Friday’s ago, while reversing our hedges to those that profit as stocks fall.
For the 401K, at the open tomorrow we are selling to put that portfolio back in the 50% stock index mutual fund, and 50% cash (money market fund.)
For the Index/Hedge/VIX portfolio, we going back to 47% QLD and 46% cash, while selling our TNA and SVXY positions to buy TZA (5%) and TVIX (2%) with the proceeds.
The squiggles in the chart below have done a remarkable job of forecasting the future path of the NASDAQ all year, with that index currently very close to where we expected the next down-leg to be born.
Other indexes, like the Dow Industrials, S&P500, and Russell 2000 small cap indexes, did not rally as far as the NASDAQ, and there remains a possibility that we will see a few days of hard sell-off that is then followed by four or five days of strong rally to complete the top. The risk, of course, is the lagging nature of those indexes is a sign of how weak the underlying stock market is, and thus the rally through today is all we see before we enter the day of reckoning phase.
Our remaining QQQ and QLD long positions will be exited on a change in trend.
It remains too early to tell whether 2018 will end well for the bulls, or end horribly for them, though either way it should be a trader’s dream.
Our positioning for the more aggressive Index/VIX/Hedge Portfolio at the open tomorrow will be: 47% QLD, 46% cash, 5% TZA, 2% TVIX. This portfolio is up over 10% in 2018, having made more than 66% in 2017.
The more conservative 401K portfolio at the open tomorrow will be 50% in a stock index mutual fund, with QQQ used for tracking purposes, and 50% in cash (or money market fund.) This portfolio is up over 4% in 2018, having made over 35% in 2017.
Next update after the markets close Thursday. Have a wonderful evening!

Christian Gustafson said...

Bear glory, not bear misery, Kevin. Today was glorious.

Icing on the cake would see the 10Y launch over 3% overnight.