Here is what we are dealing with this morning, after yesterday’s big break.
It’s a typical FOMC week where the machines react in all sorts of erratic ways, as if some information has changed. The information has not changed. The information was and still is that economies (incl. the US) were easing toward a down cycle (as bond yields dropped from Q4 2018) but were kicked into full counter-cyclical gear by the reactions to COVID-19. The Fed is and has been desperately dovish because tanking bond yields have given them the green light to inflate.
As for this morning’s bullish pre-market, the projected open based on the futures shown above is exactly at the EMA 20 (3053). It is normal for a bounce to come at support, which is lined up with the 200 day moving average at the round number 3000. That sure did look like a first crack in a new correction but the bounce attempt is the thing that will either confirm that (if it fails imminently) or negate it (if this was just a ‘healthy’ shakeout during a week full of FOMC and COVID-19 media hysterics).
The bottom line here is that SPX dumped to clear support and completely shook out the Jobs report hype from the June 5 gap up. Now there is a gap above and several below. It looks like an emphatic start of a real correction but that is not confirmed. The optimal ‘hold below’ area for a would-be bear view would be right here, a gap up to the EMA 20 and failure. Any further than that and we’d look to a gap fill near 3200, but we’d also then remain open to more bull.
Those are the parameters as I see them. I don’t see any reason yet to back off of my high cash stance after booking a lot of profits on balance this week. Market sentiment got too frothy by the measures we track every week (the recent high risk nature of market sentiment is the reason I included Market Sentiment in NFTRH 606 while omitting some other segments) and Mark Hulbert’s reading on newsletter writers and market timers also got too frothy. He believes significantly more damage will need to be done to investor confidence before the market bottoms. We shall see. This pig has fooled ’em before.