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Equity market warning sign

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    Equity market warning sign

    There was a potentially critical warning sign from US stock markets this morning that those holding equities may want to pay attention to.

    In charting terminology it’s called a Key Reversal but it simply describes a failure from record highs.

    In overnight trade last night, the Dow and the S&P both set all-time record highs only to fall this morning on weak US manufacturing data and increasing trade tensions. The resulting weakness took those indexes below the previous days low. This type of action will often feed upon itself as it’s a sign to reduce risk or exposure.

    On a daily basis from such an overextended market it would be concerning. The real problem is it has resulted in the same pattern on the weekly chart with this morning’s high above last weeks high and the current price being below last weeks low (for the Dow and S&P). Should the week end here or lower, the reversal pattern would carry far more weight and potential implications.

    Given it’s the first day of December, it does set up the same possibility on the monthly chart if further weakness unfolds. That said, it’s far too soon to predict such a development. Just something to keep an eye on.

    With portfolios having such a long term development process and being such a difficult thing to just give up on, it is important to remember put options are available for downside price protection in equity markets as well. They give you the right to be short (as a hedge) but not the obligation. If one buys puts for insurance and stocks turn back up, all that is missed out on is the cost of the insurance (the put option premium).

    Just a thought…

    #2
    TechAnalyst, thanks for the head’s up . . . Suspect more tweets tonite railing the Fed . . . more emergency repo bailout funds overnight, . . . more there is a China deal to be signed any day now . . . more buy the dips, stocks are hot hot talk, . . . more rates have keep dropping to lure the flock on. Negative rates, by the way are great.

    But the economy’s strong now approaching 0 percent growth in the 4th quarter . . . Consumers and government are in the muckity muck of wallowing debt . . . Let the good times roll . . . .
    Last edited by errolanderson; Dec 2, 2019, 17:30.

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      #3
      Is the Tweeter and Chief whistling past the graveyard??

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        #4
        If the last decade has provided any insight, I suppose give it till thursday late in the day, or friday, and it'll be time to BTFD again!

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          #5
          Helmsy,
          Is that an acronym for "Buy the Fūckin Dip" or "Bear the Fůck down"

          And don't think I've seen as much sarcasm in all of Anderson's posts combined than I saw in his last one.

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            #6
            What is the U.S. debt? 22 Trillion. Trade wars with everybody. Spitting on your allies . Using political influence to stay in power. What could be wrong!!

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              #7
              The pullback window, only lasts til 3rd week of Jan. Buy a couple atm ES puts and leave the investment as is.

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                #8
                The best indicator of market tops and bottoms imo is the DSI. Daily sentiment index is reaching nosebleed heights of 90+ in both the Nasdaq and SP500. If I had to guess how the script will play out over the coming weeks i'd say we have another week or two or upside before a gigantic sell on the news event occurs just in time for the announcement of a US/China "phase one" trade deal. We're getting close to an overbullish extreme, but something tells me things have to get a little bit sillier before we see a major correction take place.*

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                  #9
                  Originally posted by agstar77 View Post
                  What is the U.S. debt? 22 Trillion. Trade wars with everybody. Spitting on your allies . Using political influence to stay in power. What could be wrong!!
                  Your right .
                  The only thing worse is what Canada is doing .
                  Like a drunken Pirate at shore leave, throwing money away and promises that can never ever be kept without total bankruptcy.
                  Telling tall tales of the seas like climate catastrophe to try to be the popular village idiot just before you get thrown into the pig shit ...
                  not defending Trump , but the gong show here in Canada ain’t much better .
                  Last edited by furrowtickler; Dec 2, 2019, 22:42.

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                    #10
                    With the political mess here in Canada expect BOC to lower interest this week. They better to make exports more competitive, half a point now another 1/2 point next 1/4

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                      #11
                      Originally posted by farmaholic View Post
                      Helmsy,
                      Is that an acronym for "Buy the Fūckin Dip" or "Bear the Fůck down"

                      And don't think I've seen as much sarcasm in all of Anderson's posts combined than I saw in his last one.
                      The financial system is broken . . . What’s left is: the pied piper trying to lead the flock.

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                        #12
                        Originally posted by biglentil View Post
                        The best indicator of market tops and bottoms imo is the DSI. Daily sentiment index is reaching nosebleed heights of 90+ in both the Nasdaq and SP500.*
                        I was trying to keep it brief for this forum but I agree completely that the sentiment index is a great warning of an impending top (along with many other indicators currently signalling trouble). Errol has pointed out many of the fundamental warning signs as well.

                        The most concerning to me is the record net short position in the VIX futures held by large specs with commercials holding a record net long. The volatility index futures are used as a hedging mechanism by commercials given stocks tend to take the escalator up and the elevator down. The problem is, commercials don’t want to get out of their positions as they are for risk management purposes but large speculators do once the low volatility looks to be ending. In the past, this has been associated with violent breaks in stock prices. That may be what lies ahead now.

                        The problem with all of these warning signs are they are not timing indicators, just warnings of imminent danger. That is why I pointed out the key reversal. It is a potential trigger that could start the correction being warned of.

                        Macdon put it well, the message was simply figure out how many puts you need to cover your investments and buy either at the money E-mini S&P (ES) puts or further out of the money, depending on how concerned you are and how much you want to spend.

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                          #13
                          Trump just tweeted, might not get
                          China deal till after 2020 elections.
                          So that probably means a deal is close.
                          We all know by now
                          What Trump says is either
                          A ploy, or a lie ,
                          Truth never factors in the equation.

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                            #14
                            So we can currently price wheat foward for 2020 harvest next year at $270 on farm if things are gonna hit the fan I should be foward selling 20% of expected production??

                            Click image for larger version

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                              #15
                              US equity markets already done with selloff. Moves higher from here. Always buy when the news is talking that the trade deal is off and sell when the news is that a trade deal is imminent. Been doing that with JNJ for a number of cycles now by selling calls. Trade deal irrelevant to the US.

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