It is probably fair to say the market has three primary areas of concern: trade, Fed policy, and global growth. There is no question the news on the China/USA front has improved in recent weeks and stocks are lower today. On November 28, the Fed chairman backed off his “we are a long way from neutral” statement and stocks are lower today. A logical deduction could be the market remains concerned about growth/earnings.
Simple can be powerful in the markets. Respecting markets can reverse in a bullish manner at anytime, each time the S&P 500 violates one of the prior 2018 lows, the odds related to the longer-term downtrend scenario increase. On November 19, we noted, “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)”. Last Friday, the S&P 500 closed below the October 29 low of 2603. We will learn something either way in the coming days and weeks; if the lows hold or if the lows are taken out.
As noted in this week’s video, the tape (price action) has been UGLY over the past two weeks. On December 5 we noted, “Tuesday’s big drop increases the odds of the S&P 500 taking another significant leg down”; nothing has improved since then.
The average stock, like the major indexes, has been hit hard in recent weeks. If the horizontal area of possible support fails to hold, the index would have to drop somewhere in the neighborhood of 4-5% just to test the upward-sloping trendline.
As noted on Twitter, the longer-term reaction to this Wednesday’s Fed statement/press conference should be telling.
Would we be better off if we had a crystal ball and decided on 12/31/2017 to move to 100% defensive long-term Treasury bonds (TLT)?
Historical or present-day factual “reasons to remain patient” data is useless if the present-day market cannot improve. However, 1994 was a difficult year just as 2018 has been a difficult year.
This week’s stock market video covers both sides of the bull/bear coin and numerous post-Fed-statement scenarios. The video also covers numerous “keep an open mind” data points, including numerous references/similarities to 1994-95.
For our approach and our timeframe, we will stick to the prudent plan outlined in generic terms on November 24, 2018. The December 6 comments relative to establishing key “time to act” triggers are still relevant. The market paused and consolidated after making an intraday low on October 29 and there were numerous reasons to remain patient/reduce whipsaws. The purpose of remaining patient is to allow time for the market to show us something. Thus far, the market has shown very little; that may change, but it hasn’t changed yet. If the market continues to fall, our plan will most likely call for action rather than patience.
This post is written for clients of Ciovacco Capital Management and describes our approach in generic terms. It is provided to assist clients with basic concepts, rather than specific strategies or levels. The same terms of use disclaimers used in our weekly videos apply to all Short Takes posts and tweets on the CCM Twitter Feed, including the text and images above.
