Well that was quick, and ugly. Some bounce, huh! Basically 3 days and 30 minutes of oversold buying and then a smack down. The major indexes have met enormous resistance at their overhead 50-day mav’s and have NOT bettered and held key price levels (see yesterday’s post). Nvidia’s numbers apparently are not enough to offset the fear of Powell tomorrow and the pressure of continually rising rates in the bond market.
As this morning’s brief rally unfolded, the pro’s sold into it. In other words, they are “fading the market” and reducing exposure going into Powell’s Friday speech. As of 1:30pm, the SPX is on the verge of undercutting yesterday’s low and setting up the possibility of a “negative outside day” (NOD) and right after hitting and failing to get over it’s 50-day mav. This is a bearish development!
The SPX has failed to hold our technical trigger point on two attempts this morning and has now tripped a math of the market sell signal. This has caused our Current Market Outlook to be downgraded back to a red condition. As of 1:30pm, our Current Market Outlook has been downgraded to “Market in a Correction” with a red light (SPX 4,397.95). Our “Core Four” (see top of page) has 1 yellow and 3 red lights. The VIX is rallying, of course.
Just yesterday we wrote, “Keep in mind that a short-term bounce will be suspect until the main indexes lift over their respective 50-day mav’s and hold there for a few days. If Friday does not go well (Powell plays hard-ball), then the market would likely sink quickly setting up a negative pattern we call a “Nathan short.” The next few days will be VERY telling. Ask the Lord Jesus for wisdom. Trust Him to provide it.” Suspect alright! It is weakening even before Powell.
If you have ever wondered what it looks like when technical analysis shines, then today may be a perfect example in real time. It is not a coincidence that sellers stepped in at the SPX’s 50-day mav, and on the Nasdaq too! Depending on today’s close, that may become a major wall of resistance, aka. overhead supply.
Yesterday we mentioned a pattern called a “Nathan short.” (A former colleague, Nathan B, identified this critical, reoccurring chart pattern and thus it was named after him.) Simply put, it’s a distribution sequence used by the pros to unload stocks. It involves a recent index price high followed by a sharp sell-off to under the 50-day mav, which then leads to a 2-4 day bounce back up to the 50-day, and then an immediate, sharp sell-off creating what looks like a down-up-down lightning bolt pattern over a few weeks. We may be right in the middle of it today. Tomorrow will reveal much more!
One more thing. In baseball, a tie goes to the runner. But with our Current Market Outlook, when there is a tie (where two sets of the Core Four are the same color, example: 2 yellows and 2 reds) the dominant color (signal) is determined by the location of the VIX in relation to its 50-day mav- it is the tie-breaker. To that point, yesterday, I made an error in our calculation on the input of the VIX. In the post, I stated that the VIX was “rapidly declining” (which was true) but I failed to properly input that the VIX was still ABOVE it’s 50-day level and therefore a negative element. This would have resolved the “tie” and caused our signal to stay red yesterday. That was my error and the market is proving its technical point today, and we are now back to red. I am sorry and regret any inconvenience this may have caused.
The math of the market works because it follows the footprints of money. It doesn’t care about my opinion or your opinion. “Just the facts, ma’am.”
“But He replied to them, “When it is evening, you say, ‘It will be fair weather, for the sky is red.’ And in the morning, ‘There will be a storm today, for the sky is red and threatening.’ Do you know how to discern the appearance of the sky, but cannot discern the signs of the times? An evil and adulterous generation seeks after a sign; and a sign will not be given it, except the sign of Jonah.” And He left them and went away.” Matthew 16:2-4 NASB 1995
Game plan: All eyes (and ears) on Mr. Powell tomorrow! If his speech causes a big up move in the major indexes on massive volume, that would be a bullish development. But, the “Nathan short” is suggesting caution. The rate of the 10-year US Treasury note is still a big deal.
Ps. When you drop a “dead cat” it doesn’t bounce very much.
Note: You can learn more about The Triumphant Core Four risk management system by clicking here.
Have a Triumphant day! ®
The information in this article is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Not to be used as legal or tax advice. ©2023 Triumphant Portfolio Management, LLC.
Where Are Woodward and Bernstein When We Need Them? This article was written by Newt