The talking heads on CNBC morning and evening shows were projecting DOW 25,000 just yesterday. Today they’re talking 1987. Yet, nowhere do we see any actionable trading information. You only get that during the noon session, when professional fund managers are on the lunchtime show.
Most would say, “why are you watching CNBC?” To which my reply, “it’s an occupational hazard. I have to listen to all of the financial streams, as a broadcaster of actionable financial information for subscribers, and that includes CBNC unfortunately.
SPY Daily Context – 1987?
Blocks are noted on the chart where institutions have traded. Some of these trades are 500,000 to 3 and 4 million in size. One trade of 3,000,000 shares catches our attention. Where are they? 255.92 and 255.91 have been the latest blocks. Those have occurred over the past few trading sessions. The majority of blocks have been near premarket lows 254.70 and 254.60. This area represents a 0.48% drawdown from the highs more or less. 1987?
Sales and earnings are good. The yield curve is flattening, good for banks, and recession isn’t even on the horizon. Yield spreads are narrowing and junk bonds are at all-time highs.
My focus is sentiment and breadth, with the former represented by TICK cumulative in the lower panel of the chart above. In order for it to rise, institutions must be buying more stocks on the uptick compared to what they are selling on the downtick. In other words, the market sentiment is bullish until we see a bear cross. This real-time indicator is not lagging. It says they are buying on a cumulative basis.
That said, over the past 8 trading days, equities on this index have risen on lower volume. The past 6 weeks have seen equity prices gaining without a respite. Therefore, we do anticipate a reset, but 1987? Please. Until sales and earnings fall off a cliff and we see evidence that institutions are selling in masse, planning for a correction is just hyperbole. It cannot happen unless price, breadth, and sentiment say “duck and cover.”
Additionally, we have been scaling out of swing positions and leaning more towards day trades. A seventh up week hasn’t happened since the summer of 2016. This year we saw January through February produce the most recent 6-week string of higher closes. At a minimum, we anticipate a pause.
Watch List Performance – One Week
The watch list has performed as anticipated, even knowing the news in Europe and domestically might be a headwind. We also considered that we were entering week six on a higher note.
Even if the market pulls back 3-5%, your top performing positions on the watch list are up substantially more than that on average, even if you managed to get caught at the highs this week.
The takeaway today is to keep things in perspective and only watch CNBC if your job depends on it. Unfortunately, mine does. Additionally, keep price action in context. Staring at a 5minute chart can make you anxious and nauseous at the same time. Remember to zoom out to higher time frames. And, always remember prices don’t go straight up and conversely will not go straight down.
And, always remember prices don’t go straight up or straight down. You have time on your side.
Happy Thursday,
Vinny