Tough to Handicap

The technical landscape is very ambiguous this week. Not only is it a short week, but we’re already at ‘over sold’ levels by many measures.

Typically you’d look for a market bounce in over-sold conditions. If so, the 2874 level (50-day-moving-average) would be the place to look. However, given the ongoing trade issues with China, the markets could be going through a more material overhaul of future profit expectations. If this is the case, there could be more pain before markets find traction.

The 2800 level is likely the key for the week. So far, this support level has managed to hold up. As long as the market can close above this level it’s a good sign. However, a close below this level — and, more significantly, a close at the end of the week/month below this level — would likely be greeted by additional downside.

The fact this is a holiday-shortened week falling at the end of the month may make for some interesting movement on volume.

The challenge looking forward is figuring out what could drive growth from here. With the trade war potentially handicapping future profits for a large portion of the markets, the stage is set for a sideways grind. The stage does not seem set for a 50% decline (at least not yet), but it does not seem set for a big push higher from these levels either.

Perhaps we will look back and wish we had ‘sold in May and went away.’ Then again, the total market decline has only been about 4% or so for the month. The bigger concern is the bleed in ‘long’ positions in the BigFoot database. We’ve gone from over 80% long signals to now below 60% long signals. This may simply be a reflection of the spike in volatility. Then again, it could be a sign of something more.

Frankly, this trade war with China is on the verge of becoming a very real issue. This kind of event can lead to structural changes in our economy. Those changes are yet unknown. But we can likely expect the technical aspects of the market will shoot first and ask questions later. Stay tuned…

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