As I had mentioned previously, the market could be up for the whole month but drop quickly. While it didn't happen as I anticipated for the December low, it did start the following week. Not too surprised that the chart formations don't follow the prescription anymore. As mentioned, end of year and end of quarter market closes are important for the institutional players as many get paid based on performance.
But we close the following week and here is revealed what I had anticipated the chart to look like last week.
To me, this successful test of the low, especially a monthly test, would provide a base to rise sharply, perhaps to new highs. So while this low is not in yet, we are only in the first week of the month, just the fact that we dropped down to the test of the low is a stunner for most. Now, the sentiment is quickly turning bearish. After some six years of constant UP market, any down move is a stunner.
The weekly view:
While we broke out of the pennant formation that I had illustrated in past posts, there are a couple of new trend lines the can provide support. The first is the line extended from the August-September lows and the second, a few points lower. I normally don't made a big deal over these trend lines, the tests of the highs and lows are more significant to me.
Volatility upticked from an already high level.
Whether this volatility will continue to grow next week, I can't predict, as I said, it is already at a high level but the fact that it did increase requires that I still maintain a down trend bias.
I continue to hold on to the Iron Condor positions however, I closed out the call sides of both the February and March positions, paying a few pennies. While the conventional wisdom is to let these positions go to expiration where they, theoretically will expire worthless, I have seen Central Banks intervene too often, aborting downtrend moves, with intense velocity. While the Fed has recently raised interest rates slightly, the market will press them hard. I think the market wants to see if the Fed will once again give in to the bankers. So that being said, there is probably more downside but if the Fed does give in, look for a dramatic rebound.
When I see some evidence of a decent rebound, based on my daily numbers, I will post an update. Stay tuned.
Overall, virtually every market was hit this past week. It reminded me of a cycle low that I used to track years ago. When you see everything down at the same time, it's a cycle move with the good stuff getting thrown out with the bad stuff. This often is a good time to buy high quality stocks.
I was surprised to see that in my stock universe, more stocks were up this week than last. Some stocks that I checked to follow up on were: UNP, CMCSA, DVA, INT, LUV, MO, PX, SRE and WTR. Not saying that this is a buy recommendation, but I'm going to look more closely at them and see if there's anything there. Other stocks that closed up were AAPL, which has been beaten down significantly late; BBBY, which has gotten massacred, and MSFT. Sometimes it's interesting to watch this as some stocks might be under accumulation under the guise of the market massacre. By the time the market recovers, the stocks that you wanted to buy cheap have already moved.
If the old days when I used to write a publication called the TRENDSETTER, we identified such quality stocks and then waited for the cycle low to occur. Almost every time, the stocks we picked at cycle lows popped a good 10% in the next couple of weeks. If I see any opportunities such as this, I will also post, especially if I decide to buy anything.
For now though, I'm focused on the Iron Condor strategies.