MARKET SUMMARY (10/7/19) – WHIPSAWS

Was that it?

As the market started drifting down from its September highs, I was starting to hear the murmurs.

“Double Top.”
“Just like October 2018.”
“Recession!”

After a few lazy down days, things got serious this week with some big red candles popping up on our charts. In the end though, if you blinked you might have missed another bottom. 

It was yet another wild week for the market, with a nasty plunge early in the week, the usual instant “sky-is-falling” reaction, and then a sudden +3% rally to save the broken support levels.

By strict definition, the market is technically still leaning bearish: daily and weekly technical indicators like the MACD and DMI are still red and pointing down, and we haven’t established any kind of uptrend yet.

But from a more qualitative view, the action certainly feels bullish. The intraweek pullback brought up hints of last Winter 2018’s plunge, as we broke the uptrend and several support levels. But the strong bounce was enough to close the week above all of the important supports I care about. The fact that the market tested those lower levels and instantly bounced back is undeniably bullish in my opinion.

Now we just need the prices to continue to follow-through and technicals to turn up.

In terms of strict levels, I’d say SPX trading above 2,980 would be clearly an all-clear bull sign and I would want to be fully invested and ready for new highs. So for now, I’ll lean bullish, but wait out for these more obvious signals.

In an ideal world, we could still bounce around here for awhile and then dip yet again to make one more closing low even closer to the August lows. That low would set-up some very strong divergences. This possibility is primarily why I’m staying only 50% invested in my long market position.

Keeping things that simple should make things easy.

If you’re more longer-term focused, you should still be ignoring these short-term market gyrations. Don’t worry, when things get serious, I’ll be on top of it for you. The longer-term picture is still the same, and likely got strengthened with this week’s resiliency.

New highs well into next year is still the most likely scenario.


4 THINGS ON MY MIND

1. Semiconductors continue to be strong. If you’ve listened to any of the semiconductors earnings reports, you’ll know that most of the guidance and earnings have reflected the same economic slowdown news that has been generally reflected across the usual macroeconomic numbers. Yet, the SOX index keeps trading strong. Markets are forward-looking, and the strong SOX chart means something. I’ll always respect it when semis are looking bullish.

2. Bitcoin is still in sell mode. Things are actually quiet despite the breakdown. This kind of apathy makes me bullish. I still don’t think there’s a rush to put money to work here, but Bitcoin can move fast and has a tendency to catch people by surprise. So I’m keeping my eye on it for any turns. Above $9,100 with technicals turning up would make things interesting. 

3.  If you follow my Twitter, you know I’ll often watch a select group of important bellwether stocks to see if there’s confirming or divergent signs. The signs are never 100% accurate, but it gives a sense of context. Looking at these stocks, I see AAPL and MSFT near highs.  Software SaaS momentum names that were destroyed during this pullback are turning up for at least a weekly rally. Semis, as we discussed, strong. Hard to get too bearish. 

4.¬†It’s October. When we get this late in the year, Fear of Missing Out becomes a real thing and can drive market moves. Yes, October is when crashes have happened (as many permabears love to point out). But if we start moving up and any pullback fails to gain any steam…the rally will just feed upon itself. Even just going sideways through October would be enough to fuel a year-end move higher.


A CHART THAT CAUGHT MY EYE

NVDA – Nvidia

A former honorary member of the tech momentum FAANNG (FB, AAPL, AMZN, NFLX, NVDA, GOOGL), NVDA was maybe the most crowded stock among tech funds in recent years. At one point, it had rallied +1,040% from 2016 to 2018 alone. NVDA was a darling in all of the hot, buzzworthy tech sectors – high-end computing, cars, crypto mining.  

Since then, not so much. The stock was cut in half in a few months’ time and has since been trading near its bottom.

From a pure chart perspective, it’s been acting well the past few weeks. It’s been hammering out a bottom with strong positive weekly divergence, and now momentum back in a decently bullish formation.

Strategy: Buy here, with a stop either at the newly established weekly trendline around $172. As long as MACD is bullish and we hold the trendline, let it ride.

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