On Monday I did a public post, sketching up a forward look at the S&P 500 using the chart below. Aside from the fact that A dropped further than my projection I think this scenario is viable. It’s just that instead of being support to a B bounce, the SMA 50 could act as resistance to it.
Beyond the A-B-C scenario I have no real conviction for a bull or a bear case for the rest of 2018. I’d slightly lean bullish from the end of the correction, but much will be up to incoming data from our macro indicators.
SPX reversed and bounced right into the SMA 50 and now the question is whether after today’s pause the bounce will regenerate or a new decline will resume. Either of those short-term scenarios can come about after we perhaps grind around the SMA 50 for bit.
For a market that was primed for a drop, the back up in long-term yields provided the spark (with a side of whatever that disaster was in volatility ETN/ETF products). I am doubtful as to whether this pig can simply shake it all off and go back to over bullish and overbought so quickly. If there is yet a C leg ahead, I’d be prepared for it to have the potential to reach the 2460 area, where there resides a gap.
I’ve started strategically shorting this bounce (Semi & Real Estate again) per the Trade Log. If the market rams upward in one of those wonder rallies, that could be painful. But I am trying to stick with discriminating between that which has bearish potential in its own right and that which is broader, like the SPX, Healthcare, etc. Remember, even taking into account an A-B-C like the above, this market is in a major uptrend and shorting anything should not be undertaken lightly.
If the market seems set to fail around the SMA 50, be ready for a pretty good spook. We won’t be spooked, but those around us would be.
I’ll remind you that cash is paying income now and if he’s worth his salt, Chairman Powell will be allowing it to pay another .25% in March.
Note on the gold sector:
With respect to the miners, while a downturn from theoretical point B would in no way confirm a bear market, the precious metals might well have shaken off enough of the inflationists to actually move contrary to a C down leg in stocks, if applicable. Just food for thought. I think the miners are doing the work they need to do right now and that work is getting rid of the inflationistas.
Ref. the 2001 scenario when the miners went up as the SPX bounced and failed. I added back a couple of miner positions per the Trade Log and we can watch for signs of a coming low.