In NFTRH 490 we noted that the market had a sentiment underpinning that could see more short-term upside. Monday was positive and today gapped up to open and spent the rest of the day declining. Not a good short-term look for the market.
Our theme has been that the correction is not indicated to be over but that the Fed hawk and Trump tariffs noise last week had introduced some bullish stimulants within the correction. ‘Jobs’ Friday launched the relief and this morning it appeared that market participants wanted to cheer the ‘not too hot’ CPI number. Then they thought better of it as Treasury bonds bounced/yields eased (also to our theme) and stocks ran out of reasons to cheer.
It should be clear to us that the media manufacture the reasoning after the fact. Had the Dow rocketed 400 more points today on the tepid CPI report they’d have told us it was due to the perception of a less hawkish Fed (in fact, I recall some headlines saying exactly that when the market gapped up). Well, maybe it was just time for down day. Duhh.
However, back on the point of the matter, the market has not yet put the correction behind it. As noted in NFTRH 490 I was not buying the SOX/NDX at new highs routine. That seemed to be algos and managers of other peoples’ money flying right back into the tried and true leadership stuff once the Tariffs and Hawk noise subsided. As noted in the Trade Log I did a little profit taking, cash raising and short increasing today but remain positioned largely as I was, which is balanced.
As for the two leaders, an earlier public post showed the 30 min. view along with this…
“A drop below the moving averages would probably signal a test of support and lower gap fills.”
Well, they dropped below the moving averages in the afternoon. So they are likely to fill the gaps at the noted lateral support areas. It’s a 30 min. chart, not the end of the world. But just fyi, if these two lose that support they will have painted a reversal from the blue sky breakout and a potential bull trap. So it would be an important test.
As for the daily SPX, it is dropping to fill a gap of its own. I saw a lot of stocks on my watch list getting hit today but want to be a buyer only IF the items above look to hold support and SPX looks to hold the 2740 area. So a gap fill below the daily SMA 50 along with gap fills on the two indexes above are very important. Not just gap fills, but it’s what the indexes do after filling them that would be key to the way I am going to run my portfolio.
NDX daily shows how the ‘V’ bottom launched momentum to new highs and likely got everyone chasing again. All well and good if support holds, but today’s bearish reversal candle engulfed yesterday’s little one and that implies another day of pressure at least. A breakout failure would be not at all good for the bulls.
I am staying balanced until the market passes or fails this test. As part of that, here is what TLT looks like. I don’t own this 20+ year fund, but hold 7-10yr, 3-7yr and 1-3yr funds for portfolio balance as harped on quite a bit lately. They are there in the near-term to provide some income and if there is a bout of anti-inflationary risk ‘off’, so much the better if the prices get bid up too. It’s the debt of a country hopelessly manufacturing debt, so it is NOT an investment.
As for gold, silver and the miners I am not going to get charty here because the technical state is as it was on Sunday. I have a sneaking feeling about silver and the whole sector seems set up to be another portfolio balance now that we have gotten rid of the inflationist gold bug contingent.
So the bottom line of this update is BALANCE. Personally, I’d get a bit out of balance and lean in the market’s next direction. If that is a resumed correction in stocks (again, we watch the supports noted above) and a counter trend bounce in T bonds I’d expect gold/silver to out perform stocks and commodities. I’d also consider a few more short positions along the way.
If the next move is a hold of support and new upside in stocks, well… as you were. I have my watch list (currently the likes of CRY, TWTR, IRBT and any other interesting items getting pullbacks) to add to current positions.
I just wanted to give you my impressions of the parameters of things currently.