Good Evening,
We got the bounce today that we expected yesterday and that was good. However, we have a pattern developing on our major charts that would indicate that more selling is on the not too distant horizon, but we will deal with that after we go over today’s action.
Dow snaps five day losing streak
The day’s trading left us with the following signals: C-Sell, S-Neutral, I-Sell, and F-Buy. Our current allocation is 10/G, 90/F. It is off -3.10% for 2014. Here are the latest posted results:
| 01/27/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.3134 | 15.9208 | 23.034 | 32.7548 | 24.8007 |
| $ Change | 0.0030 | -0.0217 | -0.1117 | -0.3721 | -0.0659 |
| % Change day | +0.02% | -0.14% | -0.48% | -1.12% | -0.26% |
| % Change week | +0.02% | -0.14% | -0.48% | -1.12% | -0.26% |
| % Change month | +0.18% | +1.14% | -3.52% | -2.72% | -2.99% |
| % Change year | +0.18% | +1.14% | -3.52% | -2.72% | -2.99% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 16.7412 | 21.4612 | 22.9898 | 24.258 | 13.69 |
| $ Change | -0.0160 | -0.0585 | -0.0837 | -0.1057 | -0.0673 |
| % Change day | -0.10% | -0.27% | -0.36% | -0.43% | -0.49% |
| % Change week | -0.10% | -0.27% | -0.36% | -0.43% | -0.49% |
| % Change month | -0.45% | -1.53% | -2.00% | -2.32% | -2.66% |
| % Change year | -0.45% | -1.53% | -2.00% | -2.32% | -2.66% |
Now about those charts…. Why would I go defensive when I am expecting a bounce? This is why. We’ve been discussing the head and shoulders pattern that has been developing on the charts of the major indices. For the purpose of this discussion we will use the S&P 500 as it is the most representative of the market as a whole. Some say the Dow, but I disagree. Also, I prefer the S&P 500 chart as it also represents our C-Fund. Here is the latest chart that tells the story:
The support line drawn from the May top was penetrated yesterday, but price managed to close right on it. Because it is such a persistent line of support and resistance, I am using that line as the neckline of the head and shoulders pattern that seems to be developing; however, the horizontal line drawn from the December low is also a potential support line/neckline. First prices need to stop falling.Intermediate-Term Indicators: Falling into the neutral zone, but they have the potential to go much lower.Conclusion: For a while it looked as if the market was putting in a short-term bottom, but, since price closed in the bottom half of the day’s trading range, I’m not so sure that the selling is done. There is still the potential for a bounce, but intermediate-term indicators imply that this correction has farther to go.
So that’s it in a nutshell. If this pattern executes, we will get a bounce the could last a few days or even weeks followed by a correction that would most likely find support in the 1700 area. So our plan is to play defense until #1 The pattern executes and the correction is over or #2 The pattern fails to execute and the market heads aimlessly higher. I bet against this pattern on a few occasions when I was learning technical analysis and it did not come out well. I have learned to respect it. It normally executes over 80% of the time in case you want to know the odds, so make your decisions carefully. That’s all for tonight. May God continue to bless your trades. Have a nice evening.
God bless,
Scott
