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Along The Watch Tower February 3, 2018

Posted by Tom in Thoughts.
Tags: , , ,

Feb. 2, 2018 – The big question on everyone’s mind this weekend is whether or not “this” is the beginning of the long awaited correction.  I’ll cut to the bottom line:  Yes, it certainly could be.  First let’s look at how weak this market is:

SP 1500 Price Strength

The pie chart above shows the percent of stocks within the broad S&P 1500 Index (1500 of them) that are in a short term (20 day) trend.  Obviously, more than half are “weak” with only a small amount that are considered “strong” (i.e. green).

The chart of the NASDAQ Composite Index (another broad index) is shown below:


I note that the first level of price support at 7332 has been broken and the next level is 7111.  The significance of these price levels is derived from what Wyckoff called “significant weekly bars”.  That is the low price of the week where significant buying came into the market.  The other way to look at it is this is where money started to flow into the market, thus it’s low price is important.  Also in the chart above are the Money and Volume Flow indicators, which confirm price and volume “outflows”.  Sentiment is neutral.

OK, back to the correction question.  Is this the start?  We’ll know more early next week.  Will buyers come in and “buy the dip” or will additional selling happen?  Right now, no one knows.  But we do know that investors cash levels are at an all time low; and who will be the next incremental buyer to push prices higher?  The market has been over extended by being at the upper trend channel, so a pause / minor correction is not unusual.  Time to shake the market out?  Looks like it.

What is “the cause”?  Fear of higher interest rates?  Problems at the Trump Whitehouse?  Does it really matter?  Since the volume on Friday was only slightly higher, it really looks like “lack of buyers” and “extra sellers”.  That is a position of caution, thus not to get overly concerned about it just yet.

Overall, the S&P 1500 stocks look more like this:

SP 1500 A-D

With those in Accumulation and Distribution about equal (though this indicator is a slow to react one).

Let’s watch both the price and volume action on Monday and perhaps on Tuesday for indications about the seriousness of this (so far) 3 day event.  Corrections are OK, as long as we don’t get whip sawed by them.  I lighted up on just about everything on Friday afternoon, but if it gets ugly, I’ll buy a Bear Fund to hedge positions.  That gives me time to make an orderly withdrawal should that become necessary.

Have a good week.       ………..  Tom  …………

Price chart by MetaStock; pie chart & table by http://www.HighGrowthStock.com. Used with permission.


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