Monday, January 6, 2020

Fade the fear spike

Global stock markets opened the week with a risk-off tone. As the day went on, the New York market began in the red, but recovered to be positive for the day.

I wrote on the weekend that I still had a bullish tilt, but "the market action in the coming week will be highly informative of market psychology and the market's technical structure":
I interpret these conditions as the short-term bias to be still bullish. Our base case scenario is the melt-up is not over. The geopolitical shock represents a welcome test for both the bulls and the bears. Watch for a minor pause in the market, followed by further gains marked by negative divergences and an inverting VIX term structure. Those will be the signals for traders to sell. Assuming our bullish thesis is intact, the market is sufficiently oversold levels for prices to bounce.
My base case scenario seems to be playing out as expected.

The full post can be found here.

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