In this article I made the argument that at that time we really are at a critical juncture in the stock market. Every once in a while a critical “line in the sand” is drawn and which side of the line the market sits has significant implications for future price direction and for investors in general. The Feb-March 2018 consolidation is one of those times (at least it seems that way in my market addled brain).
Figure 1 below is the same Figure 1 from the previous article with one more day of data added. On the last day in the chart the stock market opened sharply lower and the whole thing pretty much seemed to hang in the balance. From there the market rallied sharply higher for the remainder of the day.
Figure 1 – Major indexes bounce (Courtesy AIQ TradingExpert)
This reminds me of one of my favorite phrases:
*That which does not kill us only serves to make us stronger.
For the market is more like this:
Jay’s Trading Maxim #44: That decline which severely tests, but does not violate, a crucial support level only serves to make that support level stronger.
So “Happy Days are here again?” Well, um, there’s the rub. With the stock market it’s never fully possible to “declare victory”, because this time could always be different and everything can change tomorrow. The bottom line is that I do not possess the ability to “predict” what will happen next in the market. But here is what I do (think I) know. The Feb-March lows are a crucial “line in the sand”.
So what follows is a handy guide for investors:
*Major Indexes remain above Feb-March Lows = GOOD
*Major Indexes drop below Feb-March Lows = BAD (in fact, possibly VERY BAD)
Since yesterday was something of a victory for the “clinging to the side of the ship” bulls let’s let the bullish flag fly. Below are two “bullish outlook” charts along with the links to the original articles that appeared on www.McVerryReport.com.
Figure 2 compares the market movement from the breakout in 2013 to previous bull runs. This chart suggests that the current bull market could still have a long ways to go.
Figure 2 – 1950, 1980 and 2013 breakouts (Source: HORAN Capital Advisors)
Figure 3 makes an Elliott Wave argument for the S&P 500 Index to soar from here.
Figure 3 – The case for SPX 3070 (Source: deflationland.blogspot.com)
For the record, I don’t necessarily agree or disagree, endorse nor disavow the analysis in these charts. I am merely pointing out that as long as support holds – and as long as an investor stands ready to take defensive action if things go south – there is no reason not to focus on “upside potential.”
So Yippee Kyay!
Alright, enough of this bullish revelry. I need to get back to being paranoid… because the reality remains that the party could end as early as today.
Vigilance, people, vigilance.
Jay Kaeppel
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
“Major Indexes drop below Feb-March Lows = BAD (in fact, possibly VERY BAD)”
True, but don’t forget that we sometimes break the lows, fall another 5% or so (with cries of 2008 or even the Great Depression returning), then rally back. Another maxim goes something like “The market does whatever confuses the most people and causes them to lose the most money.” In this case, “losing” could be shorting or moving to cash just before a rally.
Also, if shorting just under long-term support levels worked consistently, the gloom-and-doom shorting crowd would all be billionaires.
All excellent and valid points. Although for the record I feel like I addressed the whipsaw possibility in the previous article. Thanks for the comments, Jay