The month of August is playing its regular tune, whether you are a bull or a bear. Meanwhile, volatility is benefiting both parties, as news and the lack of liquidity helped the bears take control short term. Will we bounce?
SPY Bull or Bear?
We’re speulating that the channel illustrated below could play out over the next couple of weeks, with short term targets annotated. We are planning for a 5% drawdown for the time being, as a worse case scenario.
TICK cumulative is still bullish in the interim. This leads to either rotation or distribution, so until this affirmitively crosses lower, we should bounce.
All sectors were green on Monday and all were red on Thursday. Seasonality points to a potential 5% drawdown, so we are looking at the current action as institutions selling their laggards (distribution), while they add to their winners.
NYSE Bull or Bear
Here again we are planning for a 5% drawdown, with the caveat that we could bounce and retest the overhead 50sma (+1%) from the Thursday close.
The number of distribution days are increasingly bearish, however they also point to a bounce in the short term. Thursday came close to a Major Distribution Day (MDD) as down volume nealry eclipsed (-90%). The last time we saw this foracity of selling was prior to the election.
All things considered, we feel its highly likely we can move lower as August seasonality becomes painfully obvioous to those who did not sell their laggards and take some profits into the recent highs. We added to our hedge yesterday.
We will be discussing the markets during the LIVE Broadcast this morning, so stay tuned as this Bull or Bear episode plays out.
Happy Trading,
Vinny