Market Update: Air Pocket Filled
Since the middle of January I have been saying that the market is extremely extended to the upside and way overdue to pullback. The most popular (shared) chart I ever used was from two weeks ago (before last week’s meltdown) showing the Dow 2k points above its 50 DMA line and 4k points above its 200 DMA line. That was a big air pocket that has now been filled. The sell-off over the past few days is not a “normal” sell-off by any means but it is not one that warrants panic either. Remember, ladies and gentleman, markets pullback and correct. The last time the major indices corrected (defined by a correction 10-19.9% decline) was in Q1 2016, or two years ago. That’s a very very long time. In fact, that the last time we had a bear market was 9 years ago (also, a very long time).
Right now, the Dow is down 10% from its record high while the S&P 500 and the Nasdaq are still in pullback territory (0-9.9% decline). The market went from being very overbought and extended to the upside to being very oversold and it is now extended to the downside. This “big” panic-type sell-off reminds me of August 2015 when the Dow fell 1,000 points over night and then rebounded. Remember, history shows us that most of these “big” sell-offs tend to be buying opportunities, we’ll see what happens to this one. I wouldn’t be surprised to see the market stabilize over the next few days and then bounce. If that happens, that could turn into a very good buying opportunity. Conversely, if it continues to fall our stops are set and our portfolio is protected.
Market Tops:
Just a quick note on market tops, if this is indeed the top of the market then we will need to see more time pass. Rarely, almost never, have markets topped out over night. This could turn into a top, anything is possible. But remember, typically, tops take time to form. Remember Oct 2007, that was the “top” of the market but stocks didn’t crash until Sep 2008. The same is true for March 2000, that was the “top” tick but it took time for the top to form and for stocks to fall. Same is true for bottoms, they need time to form and don’t typically happen overnight.
Market Playing Chicken With The Fed:
I was interviewed earlier today by Benzinga and they asked what “changed.” A perfectly normal question because everyone wants to know “why” the market goes up or down. Fundamentally, nothing changed in the last few days except one big event: Yellen is gone and Powell is the new Fed Chair. Yellen stepped down on Friday and that was the day stocks started selling off. We’ll see how this unfolds but it is “interesting” timing nonetheless. Remember, I focus on what is happening, not why someone thinks something happens.
FLS Portfolio:
The FLS portfolio sold FB yesterday for breakeven. All our stops were moved up and thankfully we have enough of a cushion to sit through and exercise some patience. I can’t argue with anyone who is 100% in cash because that is the default move for most short-term active traders. Here is a snapshot of the portfolio as of Monday’s close:
Positions:
The service owns:
ADBE +71.28%,
CAT +40.96%, ISRG +26.56%, RMD +20.12%,
MNST +13.94%, MELI +28.21%, BABA +1.60%,
NVDA +4.29%
The service will exit:
ADBE @ 165.47, CAT @ 133.71, ISRG @ 359.64,
RMD @ 87.07, MNST @ 62.14,
MELI @ 310.94, BABA @177.68, NVDA @ 204.91
Working Orders:
There are no new working orders today.
Disclaimer:
This analysis contains information from resources believed to be reliable but is not guaranteed as to accuracy or wholeness as of the date of this publication. Past performance is not necessarily indicative of future results. There is always a risk of loss in trading and investing. Opinions articulated are subject to change without notice. This analysis and any opinions expressed are intended for educational purposes only and should NOT BE interpreted as a call for engagement in any transaction involving the purchase or sale of any security or investment product or service. The risk of loss in investing and or trading can be substantial, and traders/investors should carefully consider the inherent risks of such an investment in light of their financial condition. The author, firm, associates, or the firm’s clients may have a position in any of the investments mentioned and their positions are subject to change without notice. Any reproduction or retransmission of any portion of this report without the express written consent of 50 Park Investments is strictly prohibited.
