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Stock Market Direction: The Mechanical Bull Market Leadership Takes A Break. Will New Leaders Emerge Or Is A Bigger Correction Coming?

Jul. 27, 2020 3:16 PM ETSPDR® S&P 500 ETF Trust (SPY), SLVHYG, VXX, UUP
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Seeking Alpha Analyst Since 2020

ARMR Insider brings together the power of computer learning (AI) with the bedrock of fundamental analysis. This combination, called Quantamental investing, generates vital information giving the individual investor much needed edge to effectively and efficiently protect capital and capture upside.


  • A review of the relevant charts will help answer the question above.
  • SPY: Following the trend and it is friendly.
  • VXX: Headed lower? UUP: Time to review inter-market relationships.
  • HYG: Junk bonds lead stocks.
  • SLV: Monthly chart says it all.

SPY: Using the largest most liquid and all-inclusive average as our guide a review of the S&P500 reveals a market simply walking up the trend line that began on 6/29/20, day one of the new ARMR Risk Monitor Green entry point. The advance has been slow and steady with a lot of backing and filling. Nothing to see here. If anything, this slow steady move could be the beginning of the next phase of the Mechanical Bull market where volatility declines and equity prices grind higher. However, I will be the 1st to tell you I have no idea what the markets will do next. The key for us and the ARMR Investing Way is to read and react not crystal ball gaze. So, as long as the uptrend remains intact, we remain long and search for the new leadership if the old begins to lose momentum. However, should the uptrend fail we will need to adjust portfolio exposure and this will happen automatically as our Raised and Trailed Stops trigger profit protection mode. We began to see some of this action take place at the end of the week with gains being booked on our NFLX, MSFT & SPOT positions while losses were stopped on WORK & GWPH….

Volatility index VXX (VIX ETF): A look at the volatility index may offer some read through for the S&P500. We would expect to see VXX trend higher if the SPY uptrend was going to break. If however, VXX is breaking below key levels of support then perhaps the grind higher scenario carries more weight at the moment. As you can see in the chart below VXX broke below important 200-day ema support and challenged the lows of 6/8. The last time VXX traded at these levels SPY hit high of $323.41. So, is that telling us there is more upside to come?

UUP (US$ ETF): One look at this chart and we all need to begin thinking again about how inter-market relationships work. Historically, when a currency breaks down significantly asset prices accelerate higher reflecting the inherent inflation implications. Now look around you and see what groups in the stock market are leading and you will notice Precious Metals (of course) and Home builders (real estate). As interest rates continue to collapse and the value of the US$ suffers investors are forced to take money out of “safe” cash type positions and invest in Gold, Silver, Equities, Real Estate etc. to protect the buying power of their assets.

Junk Bonds (HYG): Offer perhaps another lead indicator for equity markets. As the chart below reveals, Junk closed at the highs of the week while equity closed off the highs. Will the equity tail wag the Junk dog? It certainly could and of course one day does not a trend make, but we must keep our eyes on this inter-market relationship…

Precious Metals: What a juggernaut of Alpha production. We continue to be 35-55% long Gold and Silver investments in ARMR Portfolios and the percentage keeps going higher with price. This over-sized allotment will allow us to trade around the core when the time is right. For now, we simply enjoy the ride and increase our Trailed Stops where appropriate. Remember, next week is options expiration week so a little weakness early in the week would be normal. We had a wonderful week Shorting GDX intraday to hedge our Long precious metals mining exposure and will continue to do so. If this is a process you wish to be a part of please check out the #armr_daytrrading in the ARMR Slack room. I will leave you with the following centerfold that you can print out and tape above your bed….

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