FREDAlert!
Volume 11, Issue 2
August 6, 2019
We have been asked about the market and feel we should put out an alert, but frankly fewer people than normal have sent panicky emails, probably because we have been writing about the possibility of this type of action for a while – so subscribers should not be surprised and likely are not. But there are still a few things we should mention.
First, for those traders who took the short trade recommended in the July 24th Midweek Review, we would take the following actions: First, cover half of your position on the open, as we have hit firmly in our target range near 280. Second, lower the stop on the rest of your position to 290 on SPY, to ensure that we make some money on this decline.
Second, realize that this decline has started from a better technical position than the last several declines. New Highs/New Lows have not gone negative, unlike the last three declines, and you will see the Weekly FBO has broken the downtrend in effect since July 2016. While it is now overbought and could pull back in this correction, this indication is significant: I cannot think of a bear market that has started immediately after such a move.
Third, the McClellan Oscillator has moved below -200, which usually sets up a short-term buy. Given the points above, this may signal a bottom coming this week. We would prefer to see the weekly stochastics come down more, and also the weekly FPO’s, which would imply more choppiness into Friday, maybe a bounce Tuesday and Wednesday, and then some decline into Friday. But for most advisors who are not trading oriented that is probably over thinking this.
Fourth, adding a little money here makes some sense both from a technical and a client relation’s standpoint. We would not go in big until the daily stochastic buy recycles, however. Realize an up open will likely test and exceed yesterday’s low, so trade accordingly. The key takeaway is that although there has been some fundamental surprise the technical picture is still well within our forecast parameters.
