Navigator Algorithms – 100% Cash
Are you enjoying a peaceful morning? If you are following these pages, you should be in cash, excepting perhaps a few of your own, long-term holdings that you hide under the pillow for a rainy day. It is ok to have a few of those. But otherwise, you should be culling your new buy list for the next run in the bull market. I am not quite ready to yield to the dystopian future that both sides promise us if the other side wins the election.
One way to enhance your returns is to always challenge every assumption in your arsenal. In a year where everything is topsy turvy, it is a useful exercise. So I was thinking this morning, what if the financial markets have the election backward too. Wall Street, comprised of greedy money-grubbers, has contributed mightily to the Biden campaign. Wall Street loves borderless Globalism. Governments can be pesky when it comes to cross border business. The fewer governments (and borders) the better. And as to China? C’mon, man, they aren’t such bad people!
Taken together, what if the market has been rallying in favor of a Biden, rather than a Trump victory. Why not? Nothing else has made sense all year? Maybe the market doesn’t favor the status quo normally associated with the incumbent. Maybe President Trump’s late surge in the polls might be sending the market down! Who knows in these crazy times? However, given 200 years of documented history, let’s stick with our current “stock market poll” model. It has been right 87% of the time. In that model, we have moved from Trump Strongly Favored to Trump Mildly Favored as the Dow Jones Industrial Average parachutes to its 200-day line.
We all know Wall Street talks a good game. It must be quite a dilemma when the players get into the Voting Booth. On the one hand, they want open borders and Globalism – it is good for future business. On the other side, do you really think these millionaires and billionaires want to pay significantly higher taxes?
I would love to be a fly on that voting booth wall to see the lever that the wealth monikers actually pull! By the way, I drove up to Cheyenne, Wyoming, and voted yesterday. The lines were palatable. Of course, I think there are only 550,000 people in the entire State of Wyoming. We don’t need too many police either, as we are all well-armed. In a few dystopian TV dramas, Cheyenne becomes the capital of the Western States Alliance. Things that make you go mmm…
Back to the markets, the S&P 500 (our primary market proxy) managed to find support on the “weekly” 21-day line. That is the same line that stopped the August-September leg of the decline. Also, there was enough of a tilt on the daily chart yesterday to keep a triangle consolidation pattern in play.
Again, it is highly likely that the 40-week cycle topped in September. Confirmation of the 40-week trough would come if we actually tagged the 40-week future line of demarcation (FLD). 40 trading weeks and 200 trading days are the same number. Hence a trip to the 200-day line (magenta line in the chart above) is closely related to the cycle. The level is 3122 on the S&P 500 futures.
Trading ranges and consolidations are fickle so none of the cycle stuff is written in stone. Whether a triangle or rectangle, we could be defining a trading range that lasts a long, long time.
So let’s continue to enjoy our vacation from the tape. We will see how unemployment and third-quarter GDP reports influence the game in the next few days. Fear is rising – as the put/call ratio hit its highest level since June. A solid low is around the corner, albeit some fireworks could accompany it. Once a buy signal renders, you will be the first to know.