The fledgling market rally that started over two weeks ago, and was confirmed by a “follow through” day last Wednesday in response to the election, is hanging on by a thread. In our (11/07/18) post we wrote… The key risks for a failure of a F.T. (follow through) day come in the first 3 days after a new signal. If the stock market can advance or just sit tight for the next 3 days and NOT experience Distribution Days (aka professional selling), then the market should build even more strength… well, it did NOT “just sit tight” and on Friday it did in fact experience a Distribution Day (professional selling) on the S&P500. As a result of that immediate sign of weakness, additional selling spilled over into this week and the markets suffered Distribution again today. (This time on both the S&P and the Nasdaq) Our light remains “yellow“, but depending on how the market performs tomorrow (Thursday), our signal could change back to “red” with another bout of heavy Distribution.
On a positive note, the market flashed an extreme technical reading today on the P/C Ratio. That signal often times suggests a short-term trading bottom may be near. If major positive news comes over night and the markets jump sharply on Thursday to keep the near death rally alive, then today’s action could prove to be what is known as a “higher low”. (The indexes have not yet undercut the price lows of 2 weeks ago- keeping the rally intact) However, it is critical to keep in mind that 2 of the necessary 4 specific technical events (mentioned in recent posts), that are necessary to upgrade our outlook and change the light back to green, have not happened yet. The remaining 2 are the more crucial of the 4 and are still four to five trading days away at the earliest from both being able to happen.
We believe the market is at an important decision point right now. Today’s type of action, where a big up opening is sold into aggressively and ends with a big decline, is characteristic of a sick market. (Please see 10/24 post) Perhaps once the pressure passes of hedge fund redemption’s, typically as of the 15th of the month, then the market may resume its current rally. On a fundamental basis, one area of increasing concern is in the “junk” or “high yield bond” market. It appears to be flashing warning signs that a credit problem may be looming. Make no mistake about it, there is a growing chance that the market could breakdown and fall much further before professional buyers emerge and step-in to halt the decline.
What an investor could do with this type of market may best be described as, “when in doubt, wait it out.” Our 5 equity based strategies have weathered the storm well with current cash levels around 45%, 50%, 58%, 60%, & 100%. We praise God for the discernment and thank our clients for their trust.
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.
©2018 Triumphant Portfolio Management, LLC.