Where Do We Go From Here?
Some Key Charts To Watch
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Before I get into some charts and this weeks letter, let me start by acknowledging that the market is very challenging just now.
It’s really really challenging, especially so if you’re not managing risk.
Even us professionals are struggling to confidently pick a direction from the data, but rather than looking for someone to tell you which direction we’re going to go, I’d encourage you to think about whether it’s a “risk on” or “risk off” for new positions instead.
My work (previous letters) laid out some warning signs for what we’re currently seeing 3-4 weeks ago with the accompanying charts.
“We’re pushing against logical pause levels across the board.” (17th Feb Letter)
“After an almighty rally off the October lows, the US markets are now starting to range and get quite messy.” (28th Feb Letter)
In this weeks letter, rather than walk through charts with the magical hindsight indicator, I wanted to update on some key charts and what they’re currently telling us now that we’re set against a backdrop of US banks parachuting lower with faulty parachutes.
Russell 2000 (IWM)
Many of you reading will have heard me say over the years that there’s always 1 index that gets the party started.
When I use these words, it’s usually because I’m expecting some kind of a decline or corrective phase in the market.
The small caps started cracking 3 weeks ago and while it’s been messy and choppy, something that personally took me out of my own bet against the small caps, they’re now starting to move to the downside.
It’s a failed break out in an area of the market that tells us a lot about risk appetite.
(I chose the wrong Put Options to express my bearish thesis for anyone wondering)
S&P500 (SPX)
The S&P has now closed below its 200 Day Simple Moving average after putting in yet another failed break out.
What comes next for the S&P500….
China Tech (KWEB)
The signs for China were on the wall the minute it put in a failed break out and a Goldman Sachs / CNBC Collaboration went out to the masses 3 weeks ago.
How they continually get away with dumping on retail investors is beyond me.
But the weakness in China Tech continues after a monster 110% rally and the KWEB chart has also now closed below its 200 Day Simple Moving Average.
Dow Jones Industrials (DIA)
We’re now breaking rank and moving below the 40Wk Moving Average… it’s just another chart that screams risk off.
In Conclusion
The way I always learned it was to know your market environment.
Is it peddle to the metal or is it sit back and watch with some popcorn and nice cold beer… for me, as I type these words 20mins into Fridays session, it’s still the latter.
Nothing good happens when major averages put in failed break outs and we’re seeing loads of them.
Not just at the index level, but stocks across the board are choppy at best.
The failed break out is a tried and trusted part of my process and it’s helped myself and our clients/members for many years to get ahead of the carnage that oftentimes ensues.
I also covered a bunch at the weekend on our YouTube channel.
Unfortunately we don’t get to set the market conditions, but we do all have an ability to manage risk and follow an investment plan.
My work is already pivoting to identify potential floors for all of the sectors / market areas so that when we do get a tradeable bottom, I’ll hopefully be on top of that too as I have been the last few years.
Whether the declines end later on today, Monday or 3 months from now, I’ll be watching the charts. (I’m open to all possibilities)
What are you watching?
Stay safe out there folks.
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