A New NFTRH Segment: Opening Notes – US Stock Market

I decided a couple weeks ago add a regular segment where I just talk about some things I think I know about a given market or situation based on the previous week’s activity. This is before I get myself educated on the latest market data and information. I need the weekly work I do in NFTRH as much as anyone. Without it, I can be rudderless and prone to my own biases.

This is just one small, less mission-critical aspect of NFTRH (representing 2 of 52 on-point pages across the markets) and the funny thing is, I think it stands up to much of the premium stuff out there in its entirety for any given week. But then, I am biased and as such I think NFTRH is better than any other market report or newsletter that I know of out there.

So here’s what I thought I knew about the stock market before beginning NFTRH 523

Opening Notes – US Stock Market

The market plunged, we deferred to quant Rob Hanna to project a bounce based on historical data, it bounced and then dropped hard again the next day. However, Rob’s data projected a 3-4 week recovery and I see some indicators both in support of that conclusion and against it.

To support it we look no further than sentiment, which I am pretty sure the Market Sentiment segment is going to indicate to be fully bullish on a contrarian basis in line with this intermediate-term Public Optimism index of US stocks from Sentimentrader. The setup is now better than it was at the lows of the February mini crash.

Working against the bull view is the simple fact that a trend that has been in place from the very beginning of the Trump Rally has been broken. Now, I make fun of we men who stare at charts for putting undue importance on trend lines (they all break sooner or later and lateral support is more important) but this one includes a break of the 200 day moving average and that is important. The SMA 200 supported SPX every step of the Trump Rally’s way until now. This is a classic looking breakdown.

I think the market is two things; preparing to bounce and possibly bounce hard (likely to the SMA 200, but let’s not rule out the SMA 50) and breaking bearish. Lots of quant followers – including Sentimentrader are noting the bullish setup, but quants are trained to follow data and the data have always resolved bullish over the course of the bull market. It’s been a long bull market and man and machine have been conditioned to expect bullish outcomes.

So the way I see it is that we should try to keep healthy skepticism right now on what the herds think, and the data imply. That means not getting caught up in the bearishness of this very moment but also not getting caught up in any bullish relief to follow. The breakdown from the SMA 200 looks like something significant and while two such breakdowns resolved bullish in 2015-2016 the market may get a “strike 3… yer out!” call yet (I watched 16 of the 18 innings of Sox-Dodgers last night before I couldn’t take it anymore and went to bed).

The bottom line is we were right about the summer robo-rally grinding up to test the top. We were wrong about targeting 3000 when the January high broke and held for a few weeks. That appears to have been a bull trap and the market has lured us into establishing a target of SPX 2100-2200. That would likely be registered sometime in 2019 if we are right about a relief rally that would not resume the bull market.

While the breakdown from the SMA 200 is significant, SPX remains above the February low with sentiment that is more over-bearish than at that low. Let’s be open to some real volatility (bullish & bearish), especially during the seasonally bullish November-December period. But if the February low gets taken out SPX is very likely going to hit 2200 in 2019.

It’s a market in motion now, and you can’t ask for better than that in my opinion.

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