Last week we warned that the bullish cup and handle pattern was starting to crack, and Monday our General Investment strategy shifted into “sell” mode… And looking at the overnight futures it seems like the shift was just in the nick of time. Just coincidence? Time and time again TVO delivers us to the sidelines at just the right time, such as exiting our brexit trade right before a 7 point drop in SPY last September, and going to cash at the very peak of the big V bottom run up 2 years before. Is this some kind of a crystal ball? No, we’re just following the moves of the big institutions through careful analysis of volume data and market internals.
When the smart money decides to leave we all know the market will soon follow, but how can we see it coming? The big boys reposition their gigantic holdings slowly (because they have to) and the market momentum seems unfazed initially (in many cases prices continue to soar to ATHs). Under the surface, however, weaknesses are developing. And while the chinks in the seemingly impenetrable bull armor are hard to spot when looking at price, the patterns formed by volume reveal their movements as clearly as if it came straight from the horse’s mouth.
While SPY declined on Tuesday, there was some heavy accumulation on the Nasdaq, so if this ship is indeed going down there are still quite a few passengers on board. If the bulls can weather the current storm, there is a chance of keeping things afloat, otherwise the 237 gap fill could be the next stop. -MD
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