This is a small portion of our weekend update which is sent to premium members of our Trade Alerts and Momentum Investing. We rarely share our reseach from our premium services in the public domain. It is meant to give a sense of the depth and quality of our research, how we read markets and the underlying thinking of our trades.
It was a blood bath for many stocks and sectors last week. But what’s next: a big crash or relief?
That’s the question we tried to solve for our premium members this weekend. Below is an excerpt of this. Note that (by far) the most interesting chart was left out in order to respect our premium members.
The S&P 500 has tested support of a potential bullish reversal.
What does this mean?
It means that as long as this rounded reversal (dark orange) is respected we will not see a crash. IF there is any support level that might work it is the one indicated with the small green circle: the crossing of the median line with an important long term horizontal trendline.
In other words once below 3,300 points we can expect much more selling to occur.
Note that September 22nd is an important ‘decision point’. That’s when a potential bearish reversal (the larger, lighter orange formation on above chart) should be invalidated.
The daily S&P 500 chart below (clean, no annotations) shows the importance of current levels, and the potential downside if 3,300 does not hold.
What does our intermarket analysis suggest?
The Euro is now completing a consolidation that took some 7 weeks to resolve. Note that this consolidation started right when we sold our silver mining position (with +21%) in our momentum investing portfolio, it appeared to be right at the top of precious metals mining prices.
There is a series of higher lows on the Euro chart, but also some higher lows. Not 100% clear if this will resolve to the upside or downside. If the Euro goes lower it will make life of stocks not easy.
Interest rates (bullish for stocks when they go up) have a hard time moving strongly higher. That’s because Treasuries (government bonds) still get a good inflow of capital. ‘Risk off’ is still here for a large portion of investors and traders.
We can reasonably expect some continued volatility in the next 2 weeks: a good relief rally which gets sold going to September 22nd.
The next 2 weeks will be telling, particularly for leading markets like Treasuries, currencies (Euro and USD), and some leading commodities. We are in a pivotal time window. Large or small changes in former trends will result from ongoing volatility. In the end that’s what volatility always does: it changes trends in capital flows, and there is no way for large investors to do this without volatility.
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