Good Evening,
I do not normally check the monthly bar chart, mostly because I subscribe to those who do. I depend on them to warn me of any patterns of concern that may be developing. Well let me tell you, Carl Swenlin identified a possible beginning of the mother of all ominous patterns, the parabolic collapse. The last time this pattern executed was in the late 1990’s when it accurately predicted the collapse of the dot com bubble. Oh yeah, that’s the one where a lot of people lost the fortunes they made during the 1990’s. Entire retirement accounts where wiped out, forcing many people to remain in the job market because they were unable to retire. Only those that played defense early were saved from the carnage. As long as the possible execution of this pattern is on the table, I will be out of the market, no if’s, no and’s, and no but’s. This is the pattern that, when executed, sells off fast and can cause large hunks of your portfolio to disappear before you ever have a chance to react. Am I scaring you? I certainly hope so. You need to watch this one closely! Now let me throw you some hope. The pattern is only possibly developing. It isn’t confirmed. We are only watching it. However, as I mentioned earlier, when and if it executes it will be too late to do anything. It’s like a country aiming a nuclear weapon at an enemy. The threat is there and by the time they actually fire it, it is too late. That’s the same way with this pattern. You need to respect it. You need to be aware of it. If it fails to execute and goes away, fine. No harm, no foul. If it does execute and you are playing defense, you will be the only man (or woman) left standing when it is done. Here is what Carl had to say:
On Friday I said that a breakdown from the bearish reverse flag formation was one of three possible outcomes — the other two were bullish. The bears ruled the day and the reverse flag broke down. The minimum downside target is about 1690.The chart that should give everyone concern is the monthly bar chart. Today’s breakdown broke through the arc of a parabolic that began off the 2009 low. We must assume at this point that a parabolic collapse has begun. That’s not guaranteed, but, let’s face it, the market can’t maintain a nearly vertical ascent forever. Extreme caution is warranted.
Conclusion: We are used to oversold conditions producing a buying opportunity, but I think those days are over for a while. Because of climactic selling, we may get a bounce out of this, or another short consolidation, but I consider any rallies to be an opportunity to close long positions. The possibility that we are entering a parabolic collapse is a scary thought, as well it should be. The parabolic on the S&P chart is not as pronounced as, say, the NDX back in the late 1990s, but the SPX is a broader index and less subject to extremes. That doesn’t mitigate the mechanics of the situation. We should view the collapse as a distinct possibility, although it may be buffered somewhat by the larger number of stocks in the index.
Forewarned it forearmed! You have been warned!!!! If executed, my downside prediction is 750 for the S&P 500! It is my prayer that this pattern will not further develop. However if it does, you all should be watching and ready. Now on to the over sold bounce that we experienced today.
Stocks gain back some lost ground
The day’s trading left us with the following signals: C-Sell, S-Sell, I-Sell, F-Buy. Our current allocation is 10/G, 90/F.
It is -2.37% so far in 2014. Here are the latest posted results:
| 02/03/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.3203 | 16.0522 | 22.525 | 32.0202 | 24.0284 |
| $ Change | 0.0030 | 0.0619 | -0.5265 | -1.0076 | -0.5049 |
| % Change day | +0.02% | +0.39% | -2.28% | -3.05% | -2.06% |
| % Change week | +0.02% | +0.39% | -2.28% | -3.05% | -2.06% |
| % Change month | +0.02% | +0.39% | -2.28% | -3.05% | -2.06% |
| % Change year | +0.23% | +1.97% | -5.66% | -4.90% | -6.01% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 16.6737 | 21.1993 | 22.629 | 23.819 | 13.4061 |
| $ Change | -0.0716 | -0.2541 | -0.3520 | -0.4322 | -0.2765 |
| % Change day | -0.43% | -1.18% | -1.53% | -1.78% | -2.02% |
| % Change week | -0.43% | -1.18% | -1.53% | -1.78% | -2.02% |
| % Change month | -0.43% | -1.18% | -1.53% | -1.78% | -2.02% |
| % Change year | -0.85% | -2.74% | -3.54% | -4.09% | -4.67% |
We’re gaining ground. Only the G fund, F fund, and L Income funds are now ahead of us. God willing, we will put them in our rear view mirror as well. Here’s the days chart for the S&P 500. Please note that today’s close was still below the 100 Day moving average. That’s downhill….
Like the new chart? It’s courtesy of Stockcharts.com. For those of you that wondered what a solid sell signal looks like, just cast your eyes on the chart above… So where do we go from here?
With the exception of the inverted flag pattern, none of the patterns that we have been watching have developed yet. The purpose of making you aware of them is to warn you of possible market outcomes of the future. That way you will be prepared to act on whichever one comes to fruition. Again, I wanted you all to know about the parabolic collapse to warn you of the possible outcome should the pattern execute. As those of you that have been with me a while know, I hate making predictions. I am a reactive trader and do not make trades based on what I think. I react to what the market gives me. I make trades based on what I see on my charts. Always have and always will. That said, I will watch the charts closer than ever over the next few days. If he market turns back up and I get buy signals then I will reallocate and buy. If not and the sell signals continue, I will re-balance my defensive funds in order to make them as effective as possible. Remember, whether you are a bear or a bull, not every day will go your way. What you must focus on is that your highs are higher and your lows are higher. Simply put, that is when you are making money. That’s all for tonight. Remember to pray for our group. God’s guidance is the key to our success. Without it we are lost. Have a nice evening.
God bless,
Scott
