I’m sure many newsletter writers and financial advisors are doing one of two things today: hiding under their desks or furiously hand-holding clients. But not here, because not only were members alerted to the downside possibilities, you were armed with the tools to manage the risk.
I reviewed where we stood in the investor sentiment cycle on May 11. I noted on June 7 that mainstream analysts were still guardedly bullish. On June 6, the line was drawn in the sand.
Click Image to Enlarge
Still, let’s go over a few points. First — if you remember what I always teach in the real-time trading sessions — we ask ourselves two questions. One: “What do we know about the May 27 and June 3 highs on the S&P 500 Index?” The answer is we know SELLERS showed up there before and when the upside move made a U-turn and came back down through this point on June 22, the trading range contained by the two red parallel lines were placed on the chart. And any time you have a range where the breakout failed on one end, you are not surprised if the price action goes to test the OTHER side of the range, as it is doing now.
Second, we ask, “What do we know about the May 25 and June 6 lows on the S&P 500 Index?” We know BUYERS showed up there, but they failed to do so over the past few days. Therefore, any rally that fails to decisively thrust back up above the low end of the trading range leaves the path of least resistance as … DOWN., but since many technicians have “seen” a head and shoulders formation on many stock indexes, the diabolical old trader in me must wonder aloud how Mr. Market will let either bulls or bears be right.
Perhaps they must all be bloodied with an enlarged trading range that largely goes sideways, conditions perfect for our all-weather portfolio strategy.
Click Correlation Heat Map to Enlarge Image
For now, continue to monitor correlation and volatility. We want to see Treasury bonds (IEF, TLT, TIP) go up during stock sell-offs. If investors begin to sell these while selling stocks, it will be a sign that they are rushing to CASH, which is my definition of CRASH. I would like to see more blue on the correlation chart ASAP. Hedge ratios are online so members can hedge their investment portfolio as necessary.
I will be back in the office on Sunday.
For previous issues, please visit the archive for more Insight and Analysis.
Thanks for the quick update to keep our heads in the game…
Thanks T. Although Bonds are not doing as well as they could, today My Core/Satelite is only down about 1% from its high. So diversity of the portfolio is still working as market is down over 12% from it’s high. I just hope it holds as I hate hedging. The Core is 80% bonds, 50% in the less volitile TIP, right now so if they hold I am not too worried about the S&P.
and now another proof of T’s percipacity…. Gold had a major breakdown today…. hmmmmm
oooops… that’s perspicacity – of acute vision or awareness…
Charles Kirk notes to day that the “death Cross” of the 50 and the 200 MA’s is very near. That will likely shake out any Bulls left. Bonds and GLD took it on the chin today. Not looking good.