Navigator Algorithms – 100% Cash
A week ago today, we were back to cash after a beautiful buy signal and small profit off the 21-day line on the previous Friday’s S&P 500 index. With our year-to-date returns solidly north of 800% (an 8-bagger for the year as it is affectionately referenced in trading jargon) – there was no incentive to play around when the market failed to follow-through on the bounce.
But the market gyrated the rest of the week right through to Friday’s last half-hour close – eeking out a small gain. From Tesla’s inclusion into the S&P 500 index to all the year-end shuffling, even I thought the S&P 500 Futures would hold 3700 and the Dow 30,000.
After all, Santa Claus is slated to arrive for his year-end rally around December 15th or so, and what could be better than a boost from a Stimulus package, finally reached in Congress Sunday and slated to pass some time today?
Then I remembered, this is the year from hell. Nothing is what it seems or what it was. Given the equal opportunity dream killer that the market can be, what would be the best way to fool this giddy crowd right before Christmas? Voila, I wake up to the S&P 500 futures parachuting into a low volume pocket, hitting the ground at 3600. That is about 1,000 Dow points off the peak in Globex at the open Sunday night.
Granted, it is 4:00 am here in the mountains, and New York does not open for another 3.5 hours. But a cruel, downside gap appears to be awaiting the longs at morning coffee. Needless to say, I am happy we are in the audience seats, popcorn in hand, to watch this unfold. At the same time, we must also be alert for the buy, as the market has breached the mean at the 21-day line, leading us further south for the winter.
Once again, I am reminded how much smarter the Navigator Algorithms are than I am, having painted double sell alerts – warning of the market’s potential, short-term demise. The yellow down arrows on the chart below are the alerts painted, with that prominent engulfing red candle at the end showing the overnight action at this writing.
I also want to pay homage to the dumb money – that Robinhood App crowd. We need each other. Who else would feed us these wonderful profits all year? When they zig, it is best to zag and vice versa. The more new traders, the merrier. Apparently, there are 14 million of them, and we are happy to take their money. This is a zero-sum game, after all.
So, where does that leave us, and what does this sell-off mean? Is this the end of the bull? Will we revisit the bottom of the megaphone pattern from this top at Mount Everest? Are we facing the second coming of the toilet paper crisis?
Funny you should ask. Rather than focusing on my usual homework, I spent the weekend preparing my 2021 forecast. You will find it quite interesting. The theme centers around the idea that 10-years of the digital revolution have been compacted into a year, and the implications for trading, investing, and life, in general, are profound.
For now, we could blame this decline on the new lockdowns, the new strain of the virus, the election, and all manner of bad things. However, at the end of the day, there is always something to tag for a rally or decline in the markets. And perhaps the Stimulus passing later today will be the catalyst for a turn back to the north.
For now, the chart above is enough of an explanation for me. The Dumb Money has been giddy while the smart money had already headed for Christmas vacation. Once again, I am reminded of that famous quote from my mother when she didn’t like one of my friends – “tell me who you walk with, and I’ll tell you who you are.”
The 2021 forecast video will be out by the end of this week. In the meantime, be on alert for a buy signal.
AF Thornton