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PUBLIC: Well, “that” was exciting, huh?!?

So, who saw that coming?  Actually, the complacency in the VIX as described in a recent post was a warning sign.  The halting pushes to new all-time highs (ATH) followed by a couple of down days were also warning signs.  But, as one famous market saying goes, “stairsteps up, elevator down.”  We got in the elevator today and it went down hard.

The blue chip market (DOW and S&P500) lost about 1.75% today.  The small caps (Russell 2000) and NASDAQ lost about a percent more for a 2.75% loss on the day.  In the process, the S&P500 fell below it’s 50-day simple moving average.  It also caused the moving average to have a downward slope for the first time since late 2016.  Remember one of my trading mentor’s truths about the market:  “Nothing bad happens when price is above a rising 50-day moving average.”  Well, price isn’t above a rising 50-day moving average anymore.  Again, that doesn’t mean sell everything and run for the hills.  What it means is that some clouds are starting to dot the landscape of a bright, blue, sunny sky.  It means if you bought the breakout on April 24th from the French preliminary elections leaving a large gap, your purchase is likely underwater.  Hopefully, you used proper risk management and placed a stop if you are trading in that manner.

Here is the good news as I see it…I see a few areas of obvious support immediately below that could be smart areas to take trading opportunities like the breakout trade discussed in late April.  Yes, the 50-day moving average is above price, no support there unless we close back above it soon (which is likely for a reason that involves options expiration on Friday).  The bottom of the gap formed from the close on April 21st is near SPY 234.50.  There is Fibonacci support between 235 and 236.  But after 234, next support is 232, 230, and then 225.  Buying near 225 or below could be a good LONG TERM place to consider adding to your equity exposure if you have cash to deploy.

Finally, if you are using a covered call strategy to earn income on a larger holding of SPY or other stocks, a day like today is a pretty good day to consider buying them back if they have produced 75% to 90% of their expected income returns, especially if they expire any time after THIS Friday.  If you want to discuss this idea further, ask a question in the comment section and we’ll talk it over!  Hope this post helps you sort through the rubble of a losing day on Wall Street.

  1. Michael
    Michael May 24, 2017

    Dr J
    I kinow you’ve been a market enthusiast for years. How long did it take you and when did you finalize your present system parameters?

    Mike B

    • Dr. J
      Dr. J June 1, 2017

      Mike, I looked back after 2008 to “find a better way.” Once I reviewed data, it just popped out at me given the information I had learned concerning moving averages, slopes, etc…

      I just don’t want my friends, family, or colleagues to lose 30%-75% of their portfolios again. For many of us, there isn’t enough time to recover from another market event.

  2. Dr. J
    Dr. J May 23, 2017

    The 50-day moving average is support now, the “launch” off the mid-2300’s area has magically risen to the 2400 mark to retest resistance, and the start of summer is right around the corner (dull stock market). This could get very interesting. I truly believe a 5-10% selloff could happen in a single day or week very, very easily, but since the market is shrugging off any and all opportunities to move lower, you just have to hold your nose and stay invested as much as you can and still allow you to sleep. I’m seeing plenty of signs in sentiment that the stock market is overvalued, complacent, and very, very few investors are even considering the overall “value” of the market at these levels. The only resistance levels I can offer that COULD turn the market around from here is round number fatigue (2400 S&P 500 and 21,000 DOW) and the upper trendline pointed out that started in 2016 and was breached briefly in early 2017, but price fell below and is now testing it again from below. If/When those areas get eaten away, this market has a chance to run up fairly quickly! Keep an eye out for movement up, up and away or falling back down to 2300 S&P, 20,000 DOW as support.

  3. Dr. J
    Dr. J May 20, 2017

    50-day moving average has been regained. The market pushed back up to resistance and fell away fairly violently near the end of the trading day on Friday. Unless it gains some momentum to the downside early in the week, I’d say the market is getting back on solid footing (news notwithstanding) and an expectation of new highs would be a fair expectation.

    I will be travelling over the Memorial Day holiday week, so I have every intention of getting to a computer and posting the month end update and send out an e-mail, but I beg your forgiveness if it doesn’t arrive until early June. At worst, I will post a brief public blog post stating “nothing has changed” from my phone if computer access or time is hampering a more robust discussion of the market. I appreciate your understanding and realize many of you may be doing the same thing over summer’s opening holiday.

  4. Dr. J
    Dr. J May 18, 2017

    And price did indeed smack right into the resistance zone I was anticipating as a day trader. Now, every decline of significance has started with this pattern of a swift push downward and a 50% rebound of the loss. We achieved the bounce today. I would consider anything breaking through 2350 S&P500 to be a sign that the market needs more downside to reach the low 2300’s first and possibly the high 2200’s within the next week or so.

    Why is this happening? The rally since November’s election has been on the “hope and prayer” that President Trump would ignite the economy with a package of various levers and accommodations such as infrastructure spending, tax reform, trade protection, and a “wall.” Many of those items are in jeopardy of not happening due to his political problems. He may be the quickest “lame duck” president in the history of the US of A! If he isn’t able to shepherd those agenda items through Congress, then the entire rally since November could get unwound over the summer fairly quickly. This is NOT a time to be complacent in the stock market. Raising cash as discussed earlier is still a very good plan. Being 100% invested should be evaluated very carefully at this point, but notice, I’m not saying “sell it all and run away” either. This is a time for balance and lock the “greed” portion of your brain away for a little bit. See how this shakes out to determine how to move forward.

  5. Dr. J
    Dr. J May 18, 2017

    Any immediate follow through to the downside has been muted as it happened overnight in the futures session and price has popped right back up to a logical place near SPY $237 (so far). Until price stays back above $239, we are not out of the woods on this dip, so do not take this morning’s rebound as an “all clear” signal yet. More downside could be looming to set up a better buying opportunity.

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