It would be a good exercise to re-read my last week’s broadcast.
Just as a reminder, here’s what I said:
A largely sideways 4-day week puts the market on alert for bullish breakouts.
But … and it’s a big But … You will have to trade these with great care and protect your trades fast.
How?
First, only set a very modest first profit target after any breakout.
Second, raise stops quickly after you’re in profit.
The consequences of this are that you may well get stopped out quickly for a scratch trade, but that’s better than a potential severe retracement against you.
I think it’s fair to say, had you observed that guidance, you would be pretty much unscathed from the carnage that ensued, even if you had found yourself in a false breakout.
What’s spooking the market is the latest inflation figures.
Something interesting to note – and bear in mind I’m not an economist.
The main inflationary drivers right now are energy prices and the situation in Ukraine, in other words, largely supply side issues.
Once those issues are resolved I would expect inflation to drop significantly, especially as most economies will still be badly bruised.
The question is … When?! And the other question is … Will it get worse in the meantime?
From our perspective we can expect some wild moves. There will still be attractive setups, but Trade Management will be the key as it was last week. Provided these moves break out from our favored setups, they will be tradeable with the condition that our trade management is super protective.
Right now, high quality setups are scarce, so be patient.
Current Market Behavior:
The previous week’s consolidation turned out to be a dud, with most stocks rolling over to make rounded tops, and some making false breakouts albeit with the chance for traders to exit without too much damage if you had followed my guidance (see above).
So, the main indices all remain well below the major Key Levels, and they even exhibited our old friend, the Waterfall pattern. Only the IWM actually reached its 50-dma before reversing, while the others came close.
Friday was a particularly bearish momentum day, and the likelihood of new lows is strong. Many stocks didn’t reach their 50-dma’s before “waterfalling” back down, which is also an indication of more bearishness to come.
Having bounced from red to amber four weeks ago, my longer term market timer (the OVIsi) has marginally dropped into red again. Last week I emphasised caution, using this as one of my references.
I also mentioned the S&P OVI was stabilizing around zero, thereby not giving us a compelling insight. This week the SPY OVI is back in the red.
In these circumstances, you simply cannot take a bullish short term signal.
As always, please do not simply follow the arrow signals blindly. Regular short term signals are prone to “noise”. This indicator is best used on conjunction with other signals, namely the Medium Term Swing Timer, the SPY OVI, and price behavior around Key Levels.
Last week I said: “All the indices still remain below their 50- and 200-dmas but look poised for a breakout. The question remains, what kind of breakout.”
The answer was “A false breakout”!
Market Outlook:
Short term we’re looking bearish.
Stock Selection:
Not many consolidations to consider this week, so I had to look at a variety of other potential setups.
Application:
I used a number of my Fast Filters this week, and I also reviewed my static watchlists. Be sure to regularly review these as sometimes a decent setup appears but somehow isn’t in the Fast Filters.
Software Upgrades
Many more important upgrades to follow in late summer / early fall.
Many people are already asking about next year’s Miami dates … Very likely to be April 22-23, which we’ll confirm soon.
This year’s Stocks Summit will be on 3rd December in London. More details to follow shortly.
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Remember, you can play the video at 1.25x or 1.5x speed if you want to save time! I have placed all the stocks covered in today’s review in your “Latest Preview” watch list.
