Today’s gap down adds even more air space to the chart making it look even more bearish. I think the 9/7 low may be in jeopardy of breaking as support, and if the August lows break then we are definitely in a downtrend from the July highs. Yes, as has been pointed out, you are not technically in a bear market until you are down 20%, but as traders we really cannot wait until SPY 370-ish to begin trading for down moves. I mean if you waited for 20% down in the 2022 bear market, you would have arrived just in time for the beginning of the bull market. And if you waited for 20% up to join the recent bull market, you would have arrived this summer which may prove to be the transition to a new bear market. Basically, the 20% “definition” is really meaningless. I’d rather use historical data to try to anticipate changes which may be coming.
It is well known that the majority of people arrive at the top of the bull trying to chase gains right as the market turns south. It is also well known that the majority of stock owners endure the pain of losses and sell out trying to cut losses just as the market turns upward. The majority is always late in both buying and selling and the majority lose money. But their losses translate to gains for the minority. Just one of the cruel realities of the markets.
Just want to point out one more thing. 9/14 looked great to many, mostly because it was up. Bulls love to see gaps up and they really love when it keeps trading up after the gap. But I viewed the gap and up move as a potentially bearish sign. Up is not necessarily good. If you are flopping up and down it could be a sign of bad things to come, even if you are more up than down. Now, of course this is the stock market and really anything can always happen no matter what you draw on your chart. You just need to look at past market behavior and try to ascertain the most likely price moves. And most importantly, always recognize that anything can happen and do your best to limit your losses.
Okay, so I’ve updated the same chart to show the action the last two trading days. It still doesn’t look great to me. What I now see is a break down to new September lows, and a possible challenge to the August lows.
This is an hourly chart, but I believe if you push into a 5 minute or even 1 minute chart, it still really looks like it’s trying to break down after consolidation.
That said, I think I really only feel about 60% or 70% confident in this. It is still a very valid call looking at a longer term chart (1 yr, daily) to say that all this negative is really small and we could still be preparing to break out to a new 52 week high. I just don’t happen to believe it…yet.
Well the first part of my prediction has come true. And we are only 1.2% away from the August lows. If we break those August lows, then we are definitely in a downtrend from the 52 week high. Now, we could still technically be in a consolidation flag on our way to new 52 week highs, but as I’ve been saying since early August, we could also be at the start of a longer-term bear market. We shall see…
Yes, well seasonally speaking, September is the weakest month in the market which tends to do better in October (although some of the biggest crashes happened in October) and November. December also is known to have the “Santa Clause Rally” to close the year. January is seasonally weak.
There is no absolute way of predicting the market course. It also depends upon your time frame of interest. I personally have a had time predicting much from 5 min to hourly charts as I think more in terms of days and weeks. Regardless, we are in a consolidative chop. We have had a pullback, but averages haven’t significantly flipped (20 just hit the 34 today) so hard for me to use the term downtrend yet. But yes, we could easily reach that. We are forming a symmetrical wedge which may lean towards previous trends, but typically is more of a coin flip.
This is seasonally/historically a tough time for the markets. The annualized returns for the next week for the S&P is about -40%, the Nasdaq -50% and the Russell 2000 -80%. But October tends to be better. The VIX jumped at the end of today, but is still moderate at below 16. And let’s not forget our fearless politicians and the budget.
So, are we going Bear? All that and the answer is who knows. Personally, I think we are still consolidating. I’m anticipating a return to an uptrend but am prepared for a defined downtrend. I reduced positions a week ago before Max Pain and am not planning to open any more in the next week, but have a strong watchlist I’m tracking and have a hold list of orders. Cash is a position.
Yes, I think I’ve been clear over and over again that even though we have been going down since the late July top, we could be in a consolidation. Some are saying that you really don’t know for sure that you are in a bear market until your are, by definition, down by 20%. For trading purposes, I’m not going to wait until we’re down 20% to begin trading for down moves. I have to trade as though we may be moving mostly down with high volatility because that is what we have been doing since August. We are definitely not in a classic orderly bull market, climbing the wall of worry. You could say that we were in such a market before the last FOMC (7/26), but not since.
The one thing about my long term investments is that I’m not worried at all about bull markets or bear markets or timing my accumulation of shares. The reason I don’t care is that I do not long term invest for eventual capital gains. I’m not buying stocks hoping to be able to sell them decades from now when I retire for a lot more than I paid for them. This is what most people do. But if you do this then you are basically trading. Long term trading, but it’s still trading. Buy low, sell high. I purposely make my long term investing and short term trading totally separate, never mixing. I will never buy something long term that I also trade short term. And what I buy for long term is basically for income (dividends), which most will say is completely boring, but it won’t seem so boring to me when I’m raking in 15%-20% (or more, hopefully) yields in retirement.
But for me looking at the psychology of traders, I think the last FOMC started a negative trend in all the indexes (basically the market as a whole) because the whole issue of inflation and rising Fed rates throwing uncertainty into the market. Traders hate uncertainty. I think that the economic news of late has not eased this uncertainty, but I think everyone was looking to the Fed to send a signal that everything is alright, don’t worry, we don’t see us having to do much more. Adding more certainty to an uncertain economic future. The downdraft this afternoon seems to suggest that Powell did not give the assurance that they were looking for.
So then we need to ask ourselves. Are we now more or less certain than we were before? This is a complicated question because I am not asking if the economic condition is good or bad. The uncertainty that traders hate means that you do not know if it is good or bad. If everyone decides that it is good when they were uncertain before, then we can rally. But often if everyone is absolutely sure that it is horribly bad, that is not uncertainty and can actually cause a rally. The stock market is a leading indicator that reflects the *future situation. It does not reflect the current situation. Most often the rallies start in the middle of a bad recession. Why? Because traders conclude that this is the worst and it will only get better in the future. Likewise, some of the biggest long term crashes start at the peak of a strong economy.
Now, we are neither in the middle of a deep recession or in the midst of an economic peak, so what I just said probably doesn’t really apply. But you still have to ask yourself if we are more or less certain. Where the Fed is concerned, what the market wants to know is if FOMC will raise rates again this year or not. This happens again Nov 1 and Dec 13. Whether they do or not, are they likely to finally tell everyone that they are done? If so then people will feel more certain, but if they refuse to say they are done, then will they raise again next year? Would they even indicate that they might reduce rates next year? A lot of this will hinge on economic data on inflation, GDP rate, and Labor.
Now, I happen to be somewhat familiar with these concepts only because it’s in my face when I’m involved in the markets. But overall, I don’t really consider myself to be much of an expert. Bottom line is these are all fundamental economic factors and I really don’t try to spend too much time trying to understand fundamentals. No matter what I may happen to think, it may have no bearing on what actually happens. What actually happens on the price charts matters much more to me than what should make sense to happen according to the fundamentals.
We broke it, closing at 431.39. We are even lower in after-hours, but not by much and it is still unclear what the open will hold. All intraday charts show us oversold and ready to bounce, but I might wait for a couple more new lows which is what often happens intraday. The daily chart says that we can go even further down before getting oversold.
Well, we did bounce today, and I think that this might be a little bear market rally. It appears to me that we could bounce up to and challenge the 9/21 gap before heading down to lower lows. I should disclose that I’m currently holding SPY calls, so at least I’m hoping for a nice bounce.
Well that little 9/25 “bounce” evaporated immediately, but the 9/27 - 9/28 bounce could be more substantial if the current consolidation ends up being 50% of the total move. If this indeed happens, then we will challenge the 5/21 gap.
The biggest factor tomorrow morning is the 8:30am PCE report. If inflation is less than expected then we could rally, but if it surprises the market by being too high then this recent bounce will likely evaporate too. Current index futures is showing a little pessimism.
Well, the gap up did not follow through at all. We closed almost unchanged, but the overall action is negative.
CNBC just reported that the majority of people (61%) are saying that the coming 4th quarter will be positive (versus negative). Now, the 4th quarter (Oct - Dec) is seasonally positive so that’s not exactly news. Then again, the majority of people are usually wrong when it comes to the stock market. CNBC is also saying they expect earnings in the 4th quarter to be good. Maybe they are right. But earnings is fundamental, and trading on fundamentals normally doesn’t work out too well. Earnings could very well be “good” (better than estimates), and stock prices could still go down. Do these people not remember the most recent earnings for AAPL and NVDA? Near term stock prices (days, weeks, months) often move exactly opposite of what fundamentals suggest they should be doing.