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My daily market timer remains red as markets drop further today. I note that SPY is bouncing off the second support level I drew out last week. It had bounced off the first one before falling through. This confirms that the levels I have drawn out are acting as support levels but support can be broken and this also shows that while it may bounce there at first attempt, it can still continue downward through support and even lower still. SPY is currently putting in a bearish dreaded "h" pattern coming out of its dumpling top. Here is the chart, but be sure to read on for a more thorough perspective.
But I also point out the following chart which is zoomed out on the daily. (I'm not even posting the weekly chart which is really bullish.) The underlying trend is unquestionably up, so while I believe we are in a period of correction in the near term, this is not where I would go all in short. It's a bull market correction not a bear market. And I would never try to call a top longer term here as that would be pure speculation. The market can put in small corrections along the way to keep its uptrend healthy. If you have some longs on, you may add a couple of shorts to keep your portfolio neutral or you may just sit it out until the market firms up again and the timer turns back to green which is my preference. Here is the longer term daily chart of the S&P.
Yesterday's action in the indices looked promising but as I told my members, it would have to confirm today for my timer to turn green. It is not confirming and in fact, the leader to the upside yesterday, IWM (RUT) small caps, is leading strongly to the downside today.
This is the type of whipsaw action we have seen in recent months prior to a correction. Indices switch back and forth going mostly sideways before following through with some real downside action. Of course I accept that the market will always surprise even the best analysts so I don't discount the possibility that this sideways action could act as our correction before returning to higher prices. Overall though, indices are continuing down from their dumpling tops and my timer remains red.
That said, I am biding my time here, being cautious and keeping my portfolio light. I did add back a half size position in HIMX as I have a combination of fundamental and technical analysis. I went half size because of my caution with the red market timer.
Here are the SPY and IWM charts. So far they are holding my initial support levels to the downside.
I wish to first take a moment to think of those who lost their lives ton this day 13 years ago and the heroes who saved the lives of many others. May we never forget.
Markets are doing pretty much what I expected since my timer turned red a couple of days ago. The dumpling tops in the indices continue to roll lower as most stocks follow suit. I have very little left in my port, a quarter size position in TWTR, a third size position in SPLK and a half size position in XIV. I took the last of my profits in HIMX this morning for over 9%.
Currently SPY is holding some levels of support but seems unable to get above the 8 ema. For now, I will sit on hands and wait for the market to either find footing or show signs of a deeper correction. Here is the SPY chart.
Markets shored up nicely on Friday and bulls kept the advantage with dip buyers at the helm. Today's moves indicate that stocks are happy to be moving higher as they flag out in bullish patterns including inverse head and shoulders on a couple of them and a cup and handle on SPY.
Even the IWM has managed to come back up through the 8 ema. As such, I have added a bit to my port and am keeping my eye out for more opportunities. Here are the index charts.
SPY appears to be testing the 8 ema with more gusto this morning after making new highs earlier this week. I will refrain from adding any new longs while the market determines whether it needs to correct or if it is just pulling back slightly to put in a JHook pattern. I am watching previous resistance levels to become support as markets pull back . Here is the SPY chart with a couple of support levels drawn.
SPY continues to move up the channel amidst geo-political turmoil. It just doesn't care and has made another new high today and a new JHook breakout. My timer remains green and my positions are doing well overall. I will continue to manage my current positions while looking for new opportunities. Here are two charts of SPY. One shows the trending channel and the other is zoomed in to see the JHook.
Markets have consolidated the rally over the last two days with all four major indices coming close to the 8 ema and bouncing. My timer remains green at this point as there has not been any strong level of distribution in the markets. SPY looks to be setting up a JHook pattern. I am managing current positions on an individual basis and enjoying the move today in TWTR. Here is the SPY chart.
Markets continue to be strong as today's candle in SPY denotes a "trader's best friend" (a doji followed by a gap up is a term coined by Stephen Bigalow) after making new highs with it's most recent breakout. This strong bullish sentiment gives no impression of an end in sight as it continues up the trend channel.
At some point, indices will need to take a break to work off overbought conditions in the secondary up trend and return to the bottom of the trend channel within its primary up trend. Today is not that day but price doesn't move in a straight line and I do note the nice zig and zag SPY has been making within the channel over the past year and half or so. Meanwhile, I have a pretty full port that includes a double size position in XIV and I am managing the positions on an individual basis. Here is the SPY chart.
I often talk about trading with the overall trend. I had run across this concept several times in my trading career. First when I read GC Seldon's book, Psychology of The Stock Market in which he states, "Endeavor to catch the trend of sentiment. Even if this should be temporarily against fundamental conditions, it is nevertheless unprofitable to oppose it."
Around the same time, I was fortunate to work with a wonderful trader who called himself SPYderCrusher. SC suggested that I only suffered significant losses when I was fighting the trend. He had developed a software program using Worden charts that could time the market. His work was insightful and I started following his timer with my trades. The idea was to only go long when the timer was green and to stay on the sidelines (or go short) when the timer was red.
It worked. My trading improved significantly and the idea of avoiding trading against the overall trend stuck with me. Quite simply, longs don't work as well in a distributive environment and shorts don't work as well in an accumulative one.
Unfortunately for the trading community, SC stopped sharing his work with the public. And while I lack software programming skills, it did occur to me that I could analyze the market in the same way that I analyze individual stocks. During the time that I followed SC's work, I also analyzed the indices using candlestick signals and other technical indicators and patterns, and I found that my own analysis came to the same basic conclusions that his did. Thus my personal Market Timer was born.
As I built the building blocks that have become my strategy, sticking with the trend became an integral part of the means to an end; the sum of which is always keeping the odds in my favor.
Over the years, I incorporated the idea of Dow theory into my timer which suggests that there is a primary trend with more minor trends beneath it. As such, I don't tend to go short when my daily market timer turns red if the longer term trend is still green, but rather stay on the sidelines. Although I may at that time already have longs in my swing trading portfolio when that turn arises and I may in this case combine a few shorts with my longs to keep a more neutral bias or I may just let each position play out but discontinue adding new longs in the more distributive environment until my timer turns green again.
The title of this piece reiterates that this is but one piece to the puzzle.
Comments are welcomed and encouraged.