So, last Monday (6-3-19) at 10:30 a.m. we issued this Trading Flash:
“First, spell check changed one of the words in this morning’s Strategy Report. It should have read “the venerable firm of Raymond James,” not “venereal.” Since I no longer have editors I just plain missed it. Second, the mutual fund outflows mentioned in today’s letter rival those of December 2018 and January 2016, both of which were downside inflection points that launched good rallies. Likewise, the Put to Call Ratio mentioned today is also suggestive of a trading bottom. Third, we had a multi-swing morning between plus and minus on the S&P 500. Such action is how bottoms are made. I do not know what the rest of the session will bring, but I think there is a good change we are making a bottom. Indeed, the SPX held support at our designated levels and rebounded. All of this is developing as the bullish retracement we target at the early-May’s “energy peak” that we advised was a downside “polarity flip” since the stock market’s internal energy was TOTALLY used up; and, we said so! As stated, our internal energy models are now fully recharged with our models suggesting 2800 – 2850 should be our first target for the SPX.”
At the time the S&P 500 (SPX/2873.34) was trading around 2729. Over the next few sessions it would climb to 2843. So again, last Thursday our models suggested the equity markets were likely to “stall” into mid-month and we issued another Trading Flash that read:
“Well, with the D-J Industrial down some 200-points on Monday morning we issued a Trading Flash stating a bottom was being formed. The S&P 500 was changing hands at ~2729 and we were bullish on a trading basis. Now, the SPX is roughly 100-points higher and the short-term oversold condition has been corrected and our models are suggesting that the SPX has traveled into overhead resistance and is likely to stall here into the often mention mid/late-June timeframe.”
Oops; as the stock market’s fore-reach carried the SPX some 50-points higher into Friday’s session. For you non-nautical types, when you pull the power off on a power boat the vessel stops almost immediately. However, when you pull the power off on the much sleeker sailboat, the boat keeps traveling forward for a much longer time than one would expect . . . aka, fore-reach. In this case, the SPX tagged ~2884 on its intraday high last Friday (chart 1). And don’t look now, but the SPX looks like it has traced out a reverse head-and-shoulders bullish chart pattern. Regrettably, our models are not always right, nothing is, but they are right a lot more than they are wrong. And as often stated in these missives, in out flying days, when you had zero visibility, you had to depend on your instruments. In the stock market it is much the same.