November 15, 2020
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“Rather than love, than money, than fame, give me the truth.” Henry David Thoreau
“Veritas Nunquam Perit”- “The Truth Never Perishes” Seneca (the younger)
“There is only one side to the market, and that’s the right side.” Jesse L. Livermore
“There is nothing new in Wall Street. What happens today has happened before and will happen again.” Livermore
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ALL TIMES EASTERN
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SPX Today 3600, Tracking: 1,704,175
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Primary Trend: Topping
Intermediate-Term: ~ Seven Sentinels Uptrend
LOLR Trend: ~ Uptrend
Trading Position: 39% UPRO, 16% TNA, 11% UDOW, 21% SVXY, 10% TQQQ, 3% Cash
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Friday 4:00 close:
SS LOLR STS
Up Up Up
7/0 5/2 7/0
Breadth: 2049/1695
McO +42.48
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This week we’ll “borrow” the words of Charles Dickens from his classic novel “A Tale of Two Cities” as we consider this strange year in which we find ourselves- 2020:
“It was the best of times; it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way—in short, the period was so far like the present period.”
The bi-polar nature of 2020 finds itself completely at home in the US Equities Market. Indeed no other dwelling could better reflect the “national psyche” of our times.
If one needed evidence of the above postulate, one would need to look no further than to examine the stock market from the early 1920s into the early 1930s as a barometer of this collective human spirit during those years:
The fact is that if we could transport ourselves back to the middle of 1929 and present this article at that time, it would have been just as appropriate and just as accurate then as we believe it to be today.
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Today we’ll examine this “tale of two markets.”
We’ll begin with a careful examination of the outlook for the days and weeks ahead – through this year and possibly into Spring 2021.
Following that, we’ll examine the much bigger picture- the outlook for the decade of the ’20s.
Following both, we’ll lay out our plan for endeavoring to maximize our advantage of both from a market trading perspective.
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Immediately below is an array which displays the last three years through today for the NYSE ADL, SPX, the Russell 2000, the DJ Transports, the DJ Industrials, and NYSE Highs and Lows:
Recapping briefly:
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NYSE Advance-Decline Line at All-Time High
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SPX at All-Time High
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COMPQ at All-Time High
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DJIA at All-Time High
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Russell 2000 at All-Time High
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DJ Transportation at All-Time High
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New Yearly Highs Hit 345 this week
In addition to the above are these overwhelmingly bullish metrics:
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Daily RSI Broke Downtrend and is Trending Higher
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Daily MACD Broke Downtrend and is Trending Higher
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Money Flow Index Broke Downtrend and is Trending Higher
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10, 50, 200-day Moving averages all trending up
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Weekly, Daily, LOLR, and STS Sentinels are ALL in uptrends
And our favorite Elliot Wave Analyst, Dr. Arnout ter Schure, has a preferred count of 3930 SPX for the weeks ahead based on the current break-out pattern.
Short and Intermediate-Term Trends are all UP.
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So far, so good. But what about the Long-Term Picture? In the immortal words of Clarence Worley (True Romance), “That’s where the trouble comes into Paradise.”
Below are the monthly views of these same indicators for the last five years, and they reveal very substantial Red Flags.
These warnings are now indicating more long-term downside probability and much deeper targets than we’ve seen in many decades:
We observe that SPX, COMPQ, DJIA, NYSE Composite, Russell 2000 are ALL making new All-Time Highs right now (through Friday).
Yet the serious problems as we observe from 30,000 feet is just these:
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The monthly RSI registers the most serious of the deficiencies. As these stock averages make all-time highs, the monthly RSI has fallen from 87 to just 65 currently. That’s an enormous and perilous decline.
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Monthly New Highs (10 month MA) have shrunk from 145 in 2018- to 9 currently
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NYSE McClellan Summation Index has shrunk from 1330 in 2018- to 344 currently
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NASDAQ McClellan Summation Index has shrunk from 730 in 2018- to 162 currently
Make no mistake: These are deadly shortfalls.
They are so ominous, in fact, that they are much more threatening than what occurred at the 2000 market top.
The following array displays a direct comparison from that 2000 top:
These comparisons reveal that the declines NOW are much more menacing than those that had occurred at the 2000 top.
The following is what followed that 2000 top over the next three years, as the COMPQ declined 79%:
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What will we do as we move through 2020 and into 2021?
As long as the Weekly and Daily Sentinels remain in uptrends- which we believe will be another three to five months- we will remain 40% to 100% LONG via leveraged ETFs. But if that TREND changes, so will we.
We look for these months to provide a highly profitable period.
But the “opportunity of a lifetime,” literally, continues to keep us waiting. Evidence mounts that the Bear Market that will follow this will be one of this century’s major events.
We’ll publish numerous additional studies on the process’s specifics in the weeks and months ahead.
When that break from the Bull Market final peak DOES arrive- we’ll align with that decline and endeavor to stay aligned through the entire Bear Cycle.
More at 9:15 AM
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