Last week we sent out a member private message about taking profits now. We have been bullish since the early October low and were expecting the rally to last until the end of year or mid January 2020. What changed? On November 19th, all three indices gaped to a new all time high then they produced an intraday sell signal within the first trading hour.One intraday sell signal is not enough to change trend, but this sell signal is special because it was produced against a new all time high. Plus the market followed with intraday day sell signals for the next three days. On the 20th, the market had a flash intraday selloff because of the rumor about phase one deal may not be signed.
Our timing model called for a temporary high for the week of 18th and the monthly models show choppiness into February 2020.
The trading range is contracting. S&P 500 has been trading in 1% band between 3075 and 3127 in the last two weeks, which shows sign of fatigue. The market internals have weakened, but has maintained high price level, in a sort of wait and see mode.
It may continue to linger around the band for sometime. Or it could also make another high to mask the internal weakness. We believe the high is in place but it may take some time to breakdown therefore it’s a bad idea to short the market at the moment. It is also in a seasonally strong period of the year so that’s another reason not to short.
We lessened our positions in AMRN and NVTA. AMRN had a clear breakout of a 52-week range when it closed above 24 on a weekly basis, but it immediately fell more than 10% below the breakout point at 24. The breakout became invalid. Something is wrong with the stock. So right now we have a very minor position with this stock. NVTA is acting quite strong lately. It took out last month’s high at 19.84 on Friday. If it can close above last month’s close at 16.11 at the end of November, we have a monthly outside reversal bar, which is quite bullish. But considering the weakness in the general market, we decided to cut position size in NVTA as well.
Because of the trade war uncertainties and business cycle, the S&P 500 didn’t have a clear breakout when it took out resistance at 3077. So now with the temporary top, we are expecting one more selloff before a real take off that will trap a lot bears. All in all, we are very bullish for the stock market. The best has yet to come.