Special Bulletin: January 5th, 2019

Day 7 did indeed yield a “Follow-Through day”! The S&P500 & Dow enjoyed meaningful price gains on volume that increased from the previous day, and in the process confirmed a new uptrend according to the disciplined work of Investors Business Daily. However, based on our disciplined, rules-based risk management system, only two of the “core 4” specific technical events (the bottom-building process) that are needed to affect a change back to a green light have happened, and as such we have changed our Current Market Outlook to a “yellow” light and have upgraded the status to “Uptrend Under Pressure”.

While it’s worth noting that not all follow-through days lead to lasting advances (especially right after a severe market decline), it’s important to note that no bull market has ever started without one. Our own research reveals that a “FT day” is a “footprint of money” and is a significant first step in a new rally phase. While the market was severely oversold and due for a bounce (see special bulletins from 12/27/18 & 01/03/19), Fridays action suggests that the market may work to lengthen its new rally attempt. What was particularly impressive about Friday’s advance was how the stock market snapped back powerfully the very next day after Apple’s negative pre-announcement, and as a result created a possible shorter-term higher low on the indexes daily charts.

The markets internals, the objective “math of the market”, are starting to show technical improvement.  History has shown that after the market flashes the extremely negative technical levels that were registered during the days leading up to Christmas a tradeable rally usually ensues for at least 2-4 weeks. History also shows the possibility of a “Low, Rally & Retest” sequence that takes place over two+ months and leads to a longer-term higher low in the indexes charts. Keep in mind the market still has serious challenges ahead of it (e.g. Monday & Tuesday trade talks in China) and has a great deal of work to do before our signal can return to a green light. Investors should not rule out the chances of another massive wave of selling in early 2019 that could drive prices even lower than Decembers lows.

Don’t try to guess the future. Take it one day at a time. Make the market reveal its true health & intention. As with the healing of the human body, the healing process of the stock market involves an element of time that must pass (in addition to price gains) in order to return to full strength. While no one knows whether the current FT day and the nascent uptrend will lead to a profitable, sustained new bull market or not, we do know that the “math of the market” will keep us on the right side of the major trends as they develop.  

Have a Triumphant day! ®