Thursday, June 28, 2018
THE CHARTS YOU NEED TO SEE TO STAY ALIVE
My old "rule of threes" had me out of the market this week. Good thing:
The third peak happened in mid-June, and my totally silly-sounding "rule of threes" said that after the third peak, you're not going to get a third simple breakdown to the lower Bollinger, but rather a longer fall. Because the market never does the same thing three times.
So now, SPY wants to break its SMA(50).
QQQ had previously sailed up to a new all-time high. Now, however, it's negated the positivity of that move. At best we get a long protracted retest of the all-time breakout. The hold of the SMA(50) makes me feel positive right now.
$VIX was popping for the past few days, but that could simply have been due to end-of-month fund repositioning. And in any case, today's $VIX doesn't make the same noises as last year's $VIX because of the destruction of the XIV ETF. So you have to look at the index charts to see whether the $VIX move really means something.
And emerging markets look positively terrible right now. The acceleration of the decline after the fail at the weekly SMA(50), to below -2 SD, makes a further 20-30% drop look suspiciously likely right now.
You could interpret all this as just the markets accepting the reality of a new American mercantilist trade policy.
What's scarier is if you instead interpret all this as the final rolling-over of US equities before a crash, recession, and eventual cyclical (at least) bear market.