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Anatomy Of A Market Change Call

Sep. 08, 2020 11:46 AM ETS&P 500 Index (SPX)
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  • SPX could be changing direction relative to the Spring lows.
  • Utilize proper risk management for non-leveraged positioning.
  • Predictions are a poor substitute for technical analysis.

On September 4 we notified our members that we were changing our core SPX position to cash. As I so often point out, this was not a prediction or a case of top calling. This was simply an observation that something had changed technically, and that it was significant enough for me to preserve capital. The core positioning has no bearing on the performance listed on the performance link on the CycleETF page- it's there to inform members on how I trade. E.G. the options trades are the only (small) leverage I use relative to my larger non-leveraged portfolio. As I discuss on the website, I acknowledge I can get some false positives with this method. I remain disciplined an re-enter with my core position at a slightly higher price in those scenarios. No big deal. The whole idea is to step aside when a potential downturn could come along and put a major dent in all those gains. Hence the name of our free service, Portfolio Protect. 

So onto the charts. First, we have the long term trend line in place. Below is our chart from the 3rd. Everything still looked 'OK'.

Stuff happens around trend lines- you have to be a bit flexible in your analysis as price action in real time is not always as 'convenient' as it is when looking at a daily chart. Throw overs are commonplace and are sometimes used as fodder to trap traders who are reacting to the breakout. In this case, the candle had moved way outside the bounds of a throw over and looked nothing like prior candles along the trend line.

Over the long weekend, multiple sources came out and warned of a downturn in the market, yet the market seemed to bounce after the selloff. In this case, that bounce perfectly re-tested the underside of the long term trend line and moved down swiftly, which is where we sit this morning on the E-mini S&P.

I reject the idea of predicting markets. Will it move down farther from here? I have no idea and neither does anyone else. The Fed could step in, a new round of stimulus could be announced, etc.- you really never know. In the absence of those things, this is a technical observation that the market could be headed lower and that's really all it is. Then I watch for what kind of patterns might emerge in that direction.

Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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