Our stop triggered yesterday at 3593 on the S&P 500 index core model, so we are back to cash as the laws of gravity still rule the universe. After we were stopped out, the market went on to sell off precipitously in the final 30 minutes of the regular session. The Asians moved the equity futures markets sideways overnight, and the futures have been rallying since Europe opened, generating a Navigator buy signal on the hourly charts.
The volume picked up from Tuesday on yesterday’s sell-off, possibly indicating some institutional selling. While I was not necessarily prescient in setting our stop and target levels in yesterday morning’s discussion, I did have that funny feeling in my gut that danger loomed. Besides, I wanted some time off.
As most of you know, I was a reluctant participant in this last run, taking the buy signal late on a continuation entry. The sell signal may be analogously early. I still believe that the market has the ability to reach the top megaphone channel line, and the 5-day line is a very conservative stop line. In fact, the market could very well make that last run from this morning’s levels. Nevertheless, we harvested 87.5 points on this last signal, adding to our winnings for the year. I am more than satisfied.
So why the reluctance? Why the conservatism? Frankly, my thinking wasn’t exactly objective. I did not want to blow our returns for the year, trying to catch a few extra points. As the old saying goes, “pigs get fat, and hogs get slaughtered.” Secretly, though, I had hoped to pop our year-to-day return over 800%. It was not to be, however. Our return for the year now sits at 779%. No complaints on this end, but you cannot blame me for fantasizing a bit.
So what gives in this market? After all, we recently bottomed the 40-week intermediate cycle. We have entered the strongest seasonal period for stock returns between October and March. We have vaccines on the horizon. The China Virus death rate is exceedingly low. We finished the election. Economic reports have been good. Why did I have that funny feeling yesterday morning?
If I could pinpoint my trepidation – it would center around three points. First, all the good news is baked in, and we are already at lofty levels. Recall our musings a few days ago about “buying the rumor and selling the news.” Second, the idea of more lockdowns, in light of our recent experience with the virus, seems utterly insane. More lockdowns and the resultant negative economic consequences are likely not baked in. Finally, and perhaps more importantly, we could be headed to a constitutional crisis as the result of accusations of Democrat election cheating. I emphasize the term “accusations.” As an attorney by background, I require evidence.
On the issue of evidence, I have seen some alarming data. However, to get to the bottom of this, I am hoping that the Democrats adopt an attitude of absolute transparency so that confidence can be maintained in the election and results. Transparency would solve the problem quickly. Absent that, there is a storm brewing surrounding the election and results. A Constitutional crisis is not baked in, and any such calamity could assault the stock market at its core.
I am now going to really, truly take some time off. If a solid, reasonable, fear-based buy signal manifests from a deep enough correction, I will issue it. Otherwise, I am done for this “year from hell.”
As always, email me at art@blueprinttrading.com if you have a question or dilemma between now and the end of the year. I will be vacationing in my underground bunker in New Zealand…