A pretty solid close of the week: in the last our of trading last Friday markets rallied higher. This one hour of trading created some solid green candles on most indexes, and particularly the S&P 500 now looks really solid. A few weeks ago we showed a phenomenal long term setup in beautiful secular trendline on the S&P 500 chart, today we’ll show a shorter timeframe. Even though this article is not meant to forecast any future move we can clearly see that the S&P 500 will eventually resolve higher.
Embedded is the daily S&P 500 chart exhibiting the recovery post-Corona crash.
The chart gives a very simple, yet effective view on the trend(s) since the Corona crash ended:
- A very strong bounce in April and May of 2020.
- A short lived volatile month of June which resolved higher.
- A nice summer rally.
- A pretty violent selloff period (Sept/Oct of 2020) which printed a very bullish W-reversal.
- A soft uptrend since November.
- A tiny bullish W-reversal in Feb/March of 2021.
It looks like this recent volatile cycle is now almost complete. The next cycle starting next week should have a bullish bias.
However, this is the S&P 500 picture, and it certainly paints a rosy picture. Because ‘under the hood’ we saw what we called ‘momentum implosion’. Many sectors sold off ‘big time’. Many momentum sectors sold off 30 to 60 percent which is understandable because they rose fast and high, but this brutal behavior is not visible looking at below index.
That said, it is clear that the next cycle(s) will be selectively bullish. What we mean by this is that only a few sectors will do well, but not all of them. When we talk about cycles we mean 3 month cycles which is a core piece of our market analysis.
In our Momentum Investing portfolio we’ll initiate a new position this week specifically in the transportation sector. It is clear that transportation stocks are outperforming the rest of the market. We incurred a few losses in the month of Feb/March, on one specific 25% allocation (one of the 4 stock positions we take) and we do what we call a ‘win back’: that’s a very focused effort to realize an equal % of profits after incurring a loss. And if anything, incurring losses is the one and only thing that each and every investor on this planet have in common. We show how we handle these situations, in a very transparent, and result focused way. Moreover, in our Trade Alerts portfolio we initiated an SPXL position a few hours before the S&P 500 rally started, perfectly timed, as our proprietary algo flashed a buy signal.