We are back above the 9/20ema, looking for a bullish follow-through day.
For many weeks we have been looking for direction in what appears to have been a aimless market. While the S&P500 met with resistance in mid-July, Nasdaq continued higher for another four weeks. After multiple attempts at piercing the highs, NDX price action finally broke through on news that Janet Yellen and the Board of Governors voted to hold rates unchanged. “No rate hike” news prompted sustained buying into the close.
The Nasdaq chart below shows RSI trending higher, with price pushing into fresh new highs. The recent dip had RSI near 30 before the index reversed. MACD crossed and points to continuation. SOTEMA is sloping upward. All of these conditions point to a bullish resolution, add a touch of “back and fill” for good measure and you have the makings of a “bullish soup.” Sarcasm.
Furthermore, for the past few sessions, we reiterated that our benchmark would be price moving back above the 9/20ema. Emphasis “above.”
We would not consider taking new long equity positions in our 401(k) until this condition presented itself. The Wednesday post-Fed sentiment is beginning to give us what is needed to sustain a bullish move into the Fall. Confirmation would occur if we have a green session today, preferably closing at highs.
Futures are pointing to a kumo breakout on the daily time frame. The four (4) hour chart broke out on Tuesday.
The S&P500 ETF (SPY) triggered a buy signal after the FED meeting. Buying continued unabated into the closing bell. MACD, RSI and stochastic all suggest higher prices in the short term, barring any surprises. Sectors are oversold adding a potential tailwind to price action.
It is our contention that post-Fed market action is beginning to confirm a cautious change, so we started scaling into our favorite long equity index fund, choosing a quarter position in VINIX.
We specifically target this index fund due to its similarities to XII, the ARCA Institutional Index (XII) which reflects the 75 stocks most commonly held by institutions in their core portfolios.
The unique idea behind VINIX, is how it employs an indexing investment approach designed to track the performance of the Standard & Poor’s 500 Index. Additionally, VINIX attempts to replicate the target indexes (SPX/XII) by investing substantially all of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
Below are the top weighted stocks in VINIX. As you can see, these components are the names we trade every day in the trading room. Therefore, when the markets are bullish, we wish to invest primarily in these companies, as it reflects our strategy based approach to investing.
Consider the “real time” bullish sentiment reflected in 18 or more TICK readings over +1000, from 14:00PM into the closing bell. This action occurs when institutions show their hand. This non-stop buying at the ASK tells us they are bullish, especially if we see a follow through today. Note we ended the day with a MAD (Major Accumulation Day) reading of +9.71:1 up volume.
Breadth is Improving
After a turn lower in July, the McClellan Summation Index (NYSI) is showing signs of reversing course. A bull cross may occur if we have a follow through session today.
Finally, we must consider our downside risk as we project forward into the November elections. We anticipate back and fill over the course of the remaining weeks in September and October, yet we see limited downside risk. Normal volatility dictates we max out at around (-5%) or two standard deviations in the short term. If we see continuation post-Fed, we will add to our position over the coming days/weeks.
Remember, this is what I am doing in my 401(k). I do not know your circumstances, so consult with your financial advisor before making any decisions and do your own due-diligence. I’ve done mine.
Special note; we will be flat on election day.
Happy Trading – CV
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