Archive for 2014|Yearly archive page

Is the Market Making a Short Term Bottom?

In Uncategorized on October 16, 2014 at 3:12 pm

Stocks have been in a downtrend for over a month losing over 10% and putting a scare into buy and hold investors. Headline risks are high with Ebola, ISIS, Hong Kong protests and oil prices dropping. In the face of this, three things lead me to believe that we are close to the end of the current selling stampede in stocks:

1) Selling skeins within BULL markets tend to last 17-25 days. We are at day 19 today. At the same time, bonds have rallied on a flight to safety. Bonds reversed yesterday at new highs forming a potential blow-off top in bonds (read SELL longer dated bonds):

2) Exhaustion selling in global stocks on huge volume accompanied by a POSITIVE chart formation called a HAMMER. Junk bond ETFs made similar patterns:

3) The Volatility Index registered back to back CVR3 VIX BUY signals (see green chevrons in bottom pane). The RED chevron mid Aug is one reason we got out of this market. When volatility contracts, stocks usually rise in price:

These three things, along with a slew of other data, suggest at least a a 3-5 day rally here and perhaps short term bottom in stocks is in place. There is no guarantee that the stock market can’t go lower, but probabilities suggest good risk/reward entry point for a portion of your risk assets.

The calls I am receiving from non-clients suggest that they are scared and that fear is growing. At the same time their advisors are not holding their hands and reminding them of their “process”. You need to review your risk management strategy and confirm that you are properly positioned.

If you are an AlphaDow or Ivy Portfolio client you don’t need to do anything — we have already made the changes for you. Our process dictated that our team move you to cash and bonds in mid-August and as such we have outperformed our benchmark while keeping risk to less than one-third of the stock market. Email me for complete details.