Navigator Algorithms – 100% Cash
The market is grumpy. We have all been there. When our significant other is grumpy, is there anything you can say or do? She will filter the bad over the good. It is best to avoid him. It is that “get out of my way or I’ll kill you” kind of mood.
And so we have avoided this latest market down-leg while the indexes try to find their footing. Facebook, Apple, and Google reported yesterday. Was it good news? Well, that depends on your mood and your filter. They all blew out their numbers, but there was something to pick on if you are in a bad mood. There always is.
iPhone sales could be better. Google has regulatory fears. Amazon indicated that it might take more lockdowns than previously expected to take over the world.
We learned yesterday that Europe is aiming to please Amazon with more lockdowns. But Europe did report a nice third-quarter GDP overnight, about half of what the US reported yesterday. The US had the best quarterly GDP ever!
But wait, isn’t the GDP expected to pop up when you are climbing out of a hole? Anyway, none of this really matters because when the market is grumpy – there is no pleasing it. We all live with someone like that, right? You have to let go of what should happen and live in what is happening at some point.
Looking at the S&P 500 cash (as opposed to futures) index above, we rounded a slow turn yesterday off a less than ideal trendline and the weekly 21-EMA. This keeps the triangle consolidation scenario alive, albeit for one more day.
But despite the great GDP and FAANGMAN group earnings reported yesterday, the futures have been off significantly overnight (as much as -400 in Dow points). We began to recover a bit in the wee morning hours after the positive European GDP arrived. That left us a spiky spine on the overnight futures candle.
On a positive note, traders explored the territory below the trendline – but it bounced back. At this writing, we are still slated for a negative opening. We will see what happens as the morning wears on.
And that magenta 200-day line, our usual appointment when the 40-week cycle tops, looks like you could reach out and practically touch it. Were the cycle to come in right on cue (and they never do, or my computer would be trading for me), we would see this correction (such a polite term) end in the third week of November. One guess would be we go to the 200-day line, rally, then retest it for good measure after the election. It is fun to speculate, but we will let the Navigator tell us what to do next. And, in furthering the speculation, let’s briefly visit the cycle chart below.
You can see the projected, composite cycle path on the gray dotted line above. The whiskers at the bottom set the range for the 40-week cycle to land. Scientifically and mathematically then, the pressure should let up a few weeks after the election. But in the topsy turvy year of 2020, I don’t think the math really paints the picture.
So pick your poison. More lockdowns, the virus surge, China tensions, Marxists, looters, or States and Cities running out of money. When the market is in a bad mood, there is never a shortage of boogie men in the closet to support it.
But as I have learned over the past 33 years, when the 40-week cycle tops, the market corrects. The pundits simply tag the decline with the latest bad news filter. It is the proverbial chicken and egg quandary. Granted, the magnitude of a 40-week cycle decline can be impacted by the news of the day, but the decline will happen regardless. You can take that to the bank, just as the moon, sun, and planets cycle dependably. One day, I will explain why. For this morning, I prefer to avoid the moody market and do something else.