Wednesday, August 16, 2017

Bought for a good time, but not a long time

Mid-week market update: Last Friday, subscribers received an email alert indicating that the trading model had flipped from short to long. In my weekend commentary (see "Fire and Fury" is hard) that my inner trader expected "the time horizon of that trade to be not much more than a week."

I am reminded of the Trooper song, "We're here for a good time, not a long time" when referring to this trade. On one hand, the relief rally has been impressive. Both my VIX model and Zweig Breadth Thrust Indicator had flashed deeply oversold conditions (see Three bottom spotting techniques for traders). If history is any guide, the duration of the rally should last, at a minimum, until Friday or Monday.

On the other hand, breadth indicators are not showing the bulls any love. The chart below shows negative divergences in credit market risk appetite, % bullish, % above 50 and 200 dma, In particular, the latter three indicators are exhibiting bearish patterns of lower lows and lower highs.

Looking into September, the stock market faces a number of macro headwinds that could serve to further depress prices.

The full post can be found at our new site here.

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