If I had one goal in these pages, it would be to give you advice you can actually follow and use. As I am sure you can attest, sometimes I get closer to the target than others. To a degree, all of the pontificating and speculation is pointless. And the question then becomes, why even try? Price, as it unfolds in front of us, is the best indicator of what to do next. Naturally, it takes time and experience to interpret price changes and volatility.
Also, there is nothing worse, at least in my view, than the advice “it might be this or it might be that.” I find myself saying “for God’s sakes, man, just spit it out and tell me what to do!” That is where the Navigator Algorithm is especially helpful. It is as close to the bottom line as it gets, and it has a 70% statistical probability of being correct. When you add a common sense stop-loss level to the signal, your losses are minimal even when the signal misses.
One reason the swing strategy (based on the Navigator Algorithm) allows for definitive calls is the time frame. The strategy is derived from daily data. Signals are far enough apart that you can actually execute them without living in front of your computer screens.
With day trading, the speed of signals is such that about all I can do each morning is to identify the most important levels we are likely to encounter. Then, you can watch for a price pivot to occur if the level cannot be overtaken. If the level is overtaken, then you monitor for continuation.
All of that is well and good, but what the heck does this all mean? What does the process entail and how do you use it? What are all these crazy terms? What do you mean, “monitor for continuation?”
Very soon, both the swing and day-trading strategies will be detailed in password-protected portions of our website, along with checklists that will allow you to use these strategies to their fullest potential. In the meantime, let’s briefly review the big picture.
The Macro Narrative
The broad market peaked in early May. Currently, more the half of the stocks in the S&P 500 are trading below their 50-day moving average. Most of the 11 S&P 500 sectors are already in corrections. Only a few sectors are still holding the market up – most notably technology.
The sector and stock weightings of the remaining positive areas are such that the indexes are still rising even though the majority of stocks are correcting. This is most pronounced in the NASDAQ 100, but also reflected in the S&P 500 index. My belief is that the few rising sectors left, such as technology, will surrender soon and we will have a more synchronous correction or pronounced trading range.
I thought it might be helpful to examine two periods from the past that are analogous to our current situation. These periods share recoveries from deep corrections such as the China Virus low we experienced last year, boosted by aggressive Fed intervention. In both cases, the nominal 18-month cycle low was not severe, as I am expecting now. I have noted that I am only expecting about a 10% correction that will eventually take us to the 200-day line.
The most notable, comparable market periods to the one at hand are the summers of 2004 and 2010. Both summers followed parabolic, Fed-policy-induced stock market recoveries from bear markets.
First, let’s look at the 2002-2004 period in the S&P 500: