Sentiment on Thursday reached extreme levels quickly and ushered in a weak bounce with help from the Plunge Protection Team late in the day Friday. The 200 daily moving average held 2980.
After some projected weakness into Monday, a reactive 1-3 day bounce should unfold. This bounce in our opinion should be used to reduce equity exposure. If you're a long term investor with a buy-and-hold mentality, you need do nothing. But that is not how we trade and issue our trade alerts.
Our objective is maximum alpha and to significantly beat the SPX. And this objective means that sometimes, our prime directive becomes not losing money over making money. Over the next four weeks, the US stock market will be highly frustrating to trade. We are highly confident in this forecast. It will be a short term traders market with very few trending trades. We have two scenarios we are watching. You can apply the paths below to all of the major exchanges.
Scenario #1- The market bounces after Monday and regains the trend line this week, then retracts back to the trend line into June 22-25. Another attempt at the early June high is made sometime in July before a larger drop into August/early September occurs.
Senario #2- The market enters a strong intermediate decline into June 25th to 2600 SPX/23000 Dow and then bounces into the first few days of July.
We get members emailing us asking about the Nasdaq, Russell or Transports but the answer is the same. They will all follow the SPX, which is a blend of everything. Our cycles and data respond best to the SPX so it’s the index we pay most attention to. Day to day the individual exchanges can vary, but when it comes to a strong trending move they all follow one another to varying degrees.
We don’t recommend shorting as the Plunge Protection Team can abort any selloff prematurely if they want to use their ammunition. Our pattern that we discussed for months of a rally into the June Fed meeting occurred exactly as forecasted. We will now see some weakness, but exactly how much remains the question. It will be answered this week.
Use this next spike in the metals complex (sliver, gold, miners) to sell or lighten any short term positions you have. They all follow gold and will not be spared during the coming drop - after which a generational buying opportunity and likely our biggest trade of the year will present itself.
The restaurants are still trading 60% off of their February highs and we believe they will outperform the market going forward. BLMN and DENN’s drop into this coming correction should be supported as institutional money looks to add value. If you’re a long term investor you can sit and do nothing. We will decide in the coming days our path but may look to sell with profit on the coming bounce and time an entry with less downside risk. We are judged on a shorter term horizon by many of our members. Most investors do not posses the mental capital to handle a large temporary drawdown so reducing risk is always our prime directive. We don’t worry about missing a trade as there are endless trading opportunities coming. Remember, Cash is a position and sometimes it's prudent to sit in it. Traders always concerned with having their capital “working" for them do not fare well over the long run.
Shaky markets often trigger large natural gas rallies. In addition, the second half of June into July is a very strong seasonal period for natural gas. UNG should perform well through the coming volatility.
We have several large trending trades planned for the next 2 weeks. Some you know about others we have held close to our vest. They will likely be quick, sharp trending trades. Please make sure you are subscribed to our alerts.
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