An October 27 Short Takes post contained the subheading “Inflection Point Says Stay Alert”. Since then, the S&P 500 has remained in whipsaw and yo-yo mode while making very little sustained progress either up or down.
Wednesday’s market closure allowed for a big picture review spanning several hours and numerous charts. The two monthly stock vs. bond charts below help summarize the current situation. The top chart is as of Monday’s close and shows what appears to be a constructive rebound after a retest of the moving averages. Fast forward one day to the end of Tuesday’s session and the constructive look flips to a concerning look.
It is important to note, given the charts above are monthly charts, the final look that goes into the history books will not be determined until the end of December. The chart above could still flip back and forth between concerning and constructive over the next few weeks. The point is we need to pay attention and remain open to all outcomes from wildly bearish to wildly bullish. We could show numerous daily and weekly charts that share a similar “pay attention” look.
A November 19 post stated the following:
“Concerns would increase if the October 29 low is exceeded, especially for more than a relatively short period of time (a few hours or a few days). Given the market’s renewed weakness during Monday’s session, it is prudent to have a detailed bearish game plan in place. “
After reviewing charts Wednesday, it is possible our current “bearish scenario” game plan will be adjusted to move at a faster rate (in bigger chunks). The plan was originally created in a manner that allows for tweaks based on how things unfold. Given the S&P 500 remains above all four 2018 lows (at least for now), we will see how things evolve in the coming days/weeks. Tuesday’s big drop increases the odds of the S&P 500 taking another significant leg down, something that was covered in a generic manner from a contingency perspective on November 23.
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