“Turn that off, it’s time to go to sleep”, my wife said. But I couldn’t pull my eyes away from my phone. The market that had closed the regular trading session just shy of all time highs a few hours earlier, was now plummeting faster than I had ever witnessed before. The “expert” consensus was wrong. The majority of British voters wanted to leave the European Union.
The “Brexit” whipsaw underscores the importance of staying flexible. A bearish macro pattern of lower highs and lower lows that had controlled the weekly chart of the S&P 500 for most of the last year was broken a couple of weeks before the Brexit vote. Bullish! The post Brexit crash sliced through TWO potential higher lows AND the 200 day moving average. Bearish! The snapback rally that followed reclaimed ALL of the moving averages in just 3 days. Bullish! I don’t think I ever flipped my stance back and forth from bullish to bearish faster.
A few weeks on, with the S&P 500 now at all time highs, it’s easy to say that the Brexit whipsaw was just a bunch of noise that was best ignored. Keep in mind though that one of these days we may see the beginnings of a REAL crash. Never forget that complacency can quickly wipe out all of your hard earned gains and then some.
So where does the market have the potential to go now? The S&P 500 has just carved out an ENORMOUS bullish “W” formation visible on the weekly chart. As I mentioned before when discussing the two smaller W’s that make up the bottoms of this larger W formation, the potential measured move is calculated by adding the height of the W to it’s top. I calculated a conservative height that ignores the “tails” of the weekly candlesticks as well as a more aggressive target which includes the full height to draw in the rectangular “measured move zone” in the chart below.
As you can see, a move to the potential measured move zone is good for better than 220 points or 10% over the next year! As long as the S&P 500 continues making higher highs and higher lows above it’s moving averages we will maintain a bullish stance… but as always, stay flexible.
(watch video below for market recap and trade details)
KGC – buy with a limit price of $5.19
(If KGC does not get filled we will track NTG instead:)
NTG – buy with a limit price of $18.56
Other 821x buy ideas:
Domestic equities and ETFs:
FN – buy with a limit price of $36.27
PRMW – buy with a limit price of $11.49
IIIN – buy with a limit price of $38.74
MLM – buy with a limit price of $189.13
CDK – buy with a limit price of $55.85
CRTO – buy with a limit price of $45.63
SMH – buy with a limit price of $56.59 (semiconductor ETF)
XLE – buy with a limit price of $68.24 (energy sector ETF)
International ETF (Columbia):
GXG – buy with a limit price of $9.19
High Yield Bond ETFs:
HYG – buy with a limit price of $84.47
JNK – buy with a limit price of $35.53
I only track one 821x model portfolio trade at a time for educational purposes. Remember, IT NEVER MAKES SENSE TO PUT YOUR WHOLE ACCOUNT INTO A SINGLE TRADE. Please refer to the section on position sizing in the 821x Trading Manual.
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“News” that George Soros is shorting stocks grabbed headlines once again this week. I don’t see why this is getting people so worked up. Soros has supposedly been making big bearish bets since the beginning of the year. He’s been warning of a repeat of the 2008 financial crisis and apparently has a 2.1 million share put option against the S&P 500.
I have no clue if George Soros is right. However, I do know that “news” like this does nothing to help us make money. We make money when we position our trades in the direction of the 8 and 21 day moving averages. Right now these moving averages are rising, so we are bullish and long stocks. In fact, this week the S&P 500 poked through the highs of last November, essentially negating the macro pattern of lower highs and lower lows that has controlled the big picture over the last year.
The only argument bears can make now is that this was a failed breakout which will lead to a fast drop lower.
I will grant that this is a possible scenario. However, the weight of the evidence we have right now still points to higher prices.
If Mr. Soros and the bears turn out to be right, we will have plenty of time to change our stance and position our portfolios accordingly. We would lock in profits and raise cash as our holdings give us 821x sell signals one by one. We could look to move some money into other asset classes such as bonds and/or gold. Finally, we may take bearish bets against stocks alongside Soros by purchasing inverse ETFs,
We will have sufficient early warning.
We have a plan of action.
There is no reason to fear.
In case you hadn’t noticed, the S&P 500 has had a MONSTER rally since February 11, rising over 14%. Just since the beginning of March, the index has risen over 137 handles!
Knowing this, look at the headlines below:
Has any of the hand-wringing about the, at times, anemic volume of this rally been helpful? ABSOLUTELY NOT!
I understand the disbelief. When I calculated the potential measured move of the bullish “W” formation in the S&P 500 on March 5th, I was skeptical that it would actually be reached. Yet here we are.
Sure this rally is getting long in the tooth. Sure the 200 day moving average is still declining. But we make money when price remains above the 8 and 21 day (exponential) moving averages. Before this rally comes to an end, we are going to AT LEAST need to see a close below the yellow line in the chart above. Getting bearish before that happens makes no sense. These simple principles apply to anything you are trading.
Volume is noise. Tune it out and focus on what makes you money which is price. Like Brian Shannon, one of my virtual mentors, is known for saying: Only Price Pays. Profits made on low volume are just as valid as profits made on high volume.
So turn down the volume and listen closely to what the price action is telling you.
You’ve worked hard to build up your savings account. There’s no reason why you can’t put that capital to work for you. The stock market is an incredibly powerful and convenient tool that allows you to do just that.
But how do you actually go about using this tool to grow your savings?
The Standard Advice
Personally, I’m not willing to settle for mediocre returns from an expensive money manager. I’m also not interested in patiently waiting for my account to recover from a market crash. Been there, done that. No thanks. There is another way.
It really is that simple. So why don’t more people do it? There are a lot of reasons, but for now, let me just address the two excuses I hear most often.
Excuse 1: “It’s too hard”
Repeating this statement is like holding up a white flag. I mean sure, you have to apply yourself and do some work. You do have to learn about managing risk and your emotions. It shouldn’t be a surprise that something worthwhile will take some effort.
But let’s be honest: this isn’t brain surgery. Hell, I can do it! My background is computers and music, not Wall Street. Seven years ago I didn’t know the first thing about stocks. If I can figure this out, there’s no reason why you can’t as well.
Learn the rules of a trend following system like the 821x and then study charts. See how a big winner looks at it’s buy point and vice-versa for big losers. It’s not hard, it just takes practice and repetition to identify the best setups.
Excuse 2: “I don’t have time”
Do you have time to watch TV? Do you have time to play video games? Do you have time to surf the web? I could go on but I won’t. Just answer the following questions and be completely honest with yourself.
Is it worth investing the time it takes to develop a valuable skill that will ultimately lead to increased personal freedom?
Is the short-term sacrifice worth the long-term benefit?
If your actions are not congruent with your answers, perhaps you need to spend some more time on this to figure out the truth. For example, if you continually engorge on junk food, one would have to seriously question the veracity of any claim you make about wanting to lose weight.
Another thing to keep in mind is that the first step is always the hardest and most time intensive. Once you get past the learning curve of a system like 821x, it really should only take a few minutes a night to look through charts and enter orders if any. The cost in time spent is miniscule in comparison to the potential benefits.
So get busy. Don’t be afraid to make some mistakes. Lose the excuses. You can do it!
(watch video for details)
IRMD – buy with a limit price of $26.50.
Other idea INFN – buy with a limit price of $19.76.