From Space: Syria, Lebanon, Jordan, Israel, Egypt, Gaza, Beirut, Hamah
by
1975
In this issue:
Pivotal week
Volume, Vix - waiting for the signal
Picking our spots on some key indices
Risk Index
Under 50 = accumulate, over 70 = defensive, over 90 = distribute
The Risk Index is a combined read of the trends of 68 intermarket spreads and indicators, from credit spreads in the US to car sales in Spain.
I am sniffing out a short term low, but the Risk Index is saying that the pain isn’t over. It looks like early 2024 will be more of the same - the market going nowhere or down, while inflation means real returns are far worse.
Any key inputs?
Wed: BoC rate decision
Thurs: ECB rate decision
Fri: US Core Consumption data
Although these events will play interference, it’s all about global risk, yields and whether seasonal strength can overcome the fear.
Reading the leaves
It is always uncomfortable writing about trading for profit when there is a gobal focus on events involving members of our species killing other members of our species.
Our usual pattern is gathering steam, as discussed a year or so ago (here). Still a way to go, but it seems the snowball heading downhill and we are oblivious as always, unable to stop it.
This remains a blog that is focused on trading, or more specifically, risk in equity markets.
Let us continue.
The MMFI, showing the number of stocks above their 50 DMA, showed weakness in late July. One of the reasons a short was called for.
This chart has the same markings from July up top, with new ones from October at the bottom.
As the divergence in July showed equity weakness (fewer stocks above their 50 MA despite equities being higher than the first peak), the most recent bounce in equities came after a lower low on this chart. Not a great sign - and that’s supporting the potential for a bout of severe weakness to fully load up the next bounce.
The Vix has been stubbornly low for months, despite some equity weakness, and looking at it today Vix futures have hardly budged.
This can quickly change, and stocks are close to extremes in the short term. If the Vix term structure goes into contango this week - that would be the line starting high on the left and moving lower, meaning people are at last paying up to hedge risk - that will be a decent contrarian signal.
Vix futures term structure - from vixcentral.com
Volume has similarly been too suppressed for a ‘real’ bottom to form, however there was a jump last Thursday, seen across multiple indices. If there are more volatile days this week, this will be sure to bring in more volume.
Volume is needed for good bottoms. 🤷♂️
Nasdaq with volume along the bottom
Beware though, oh Contrarian
To take a contrarian signal, price needs to be in the right place too. The Russell is sitting pretty above suitable support. I’ve been holding since July and at long last it looks like I’ll be taking it off the table this week. If it bounces without making new lows from last week (you never know….), I’ll take it out with a smaller profit.
Either way, this is the week I’m looking to close out. My conviction is stronger as there have been a few bear-porn newsletters issued over the last few days. Another nice signal after a market has been trending lower for months.
Russell 2000 Weekly. A multitude of support coming in here. However, that longer term 200MMA is popped in as well to remind us that it’s at these spots of ‘obvious’ support that price can get away from us for a few days and punish impatient longs.
The S&P is kicking into a similar area of support. I would be tentative around here unless there’s some major weakness to buy into. A dip under that 200 WMA, around the 3,800 mark on the S&P, would give more confidence for a buy.
S&P weekly. Similar to the Russell, a lot of long term MAs coming in here and some big support just below.
Quote to Self
"Any story about revenge is ultimately a story about forgiveness, redemption, or the futility of revenge."
~ Nick Wechsler ~
Have a great week, and take care out there.