Major market indexes were smashed this past week as the NASDAQ Composite and S&P 500 fell out of bed, breaking below the lows of the volatile, wide ranges they have traced out since mid-December. By Friday the selling had reached a near-term oversold level sufficient enough to generate a reaction rally as the NASDAQ Composite bounced off logical support at its 200-dma.
In last weekend's Focus List Review we pointed out the double-top short-sale entry trigger that had occurred two Wednesdays ago in the SPDR Select Sector Technology Fund (XLK). That played out very well for anyone short the XLK or any other variety of inverse tech-centric ETFs, including the ProShares UltraPro Short QQQ (SQQQ) ETF as the XLK slashed through 200-dma support and
Two Wednesdays ago we issued Short-Sale Set-Up (SSS) reports on five big-stock tech names as the XLK began to weaken. All five, Applied Materials (AMAT), Arm Holdings (ARM), Salesforce.com (CRM), Micron Technology (MU), and ServiceNow (NOW). At the time all five were in short-sale entry positions along broken prior moving average support, AMAT at 10-dma/20-dema resistance, ARM as it broke the 50-dma, CRM at 10-dma/20-dema resistance, MU at 200-dma resistance, and NOW along 10-dma resistance. All five stocks have since broken lower as AMAT, ARM, and MU now dangle in No Man's Land while CRM and NOW attempt to find their footing at their 200-dmas.
The stock market was not the only thing falling out of bed this past week. Over the past several weeks we have pointed out that Bitcoin ($BTCUSD) has been forming a late-stage failed-base (LSFB) short-sale formation since it failed on a breakout attempt. While the hype and the hope surrounding the crypto-space after Trump's election win has been perpetually bullish, the technical reality is that $BTCUSD has worked out well as an LSFB short-sale target ever since it failed at 20-dema support.What is fascinating is that since posting an initial double-top short-sale (DTSS) entry trigger on January 20th, $BTCUSD has played out as a perfectly textbook LSFB short-sale target. And, in textbook fashion, once it broke out to the downside of a bear flag it formed during the first 20 days of February, on Friday $BTCUSD undercut and rallied back above the 200-dma to trigger a short-sale cover point after breaking -28.42% from the January 20th peak to Friday's low.
$BTCUSD is now attempting an oversold bounce, but the bottom line is that this has been one of the more profitable short-sale targets in this market even when compared to the breakdowns in leading stocks. The lesson is clear: the only truth in the markets is on the charts, and it is likely that $BTCUSD will not make new highs again without some help from the Trump Administration, which remains an exogenous and unknown force.
This remains a difficult market, but, as Jesse Livermore once said, there is only one right side in any market, not the bull, and not the bear side, but the right side. This week the right side was the short side, and that has worked out quite well for those attuned to the signals. With the market now reaching a near-term oversold state and bouncing on Friday's month-end and MSCI Index rebalancing, which may account for the late-day recovery in stocks after faltering mid-day, we will now see whether a new right side emerges or whether the short side of the market remains the right side. Stay tuned.The Market Direction Model (MDM) remains on a BUY signal. Since Feb 9, 2019, MDM has allowed for greater selloffs to minimize whipsaws. The risk is larger losses. https://www.
$COMPQ and $SPX had been trading in a sideways, choppy band since December. $COMPQ reached the lower end of its band on Tuesday then broke below while the $SPX is still within its band. This coincides with $COMPQ at its 200dma.
Also, AAII sentiment is at levels seen near or at major market lows.
Meanwhile, global liquidity / stealth QE continues to pump and should reaccelerate sooner than later based on various metrics. https://www.virtueofselfishinvesting.com/reports/view/market-lab-report-ism-vs-global-liquidity-vs-markets
Nevertheless, should selling continue in a pronounced manner in the days ahead, MDM will move to cash then possibly to a sell signal, depending on how things unfold.