Distribution Phase, Top is in.
Where are we? Where are we going?
What does the data show?
We had the quickest recovery from a bear market in 50 years? And we went from a market that was peaking in February to sectors that are clearly in their excess phase now.
In 2000 people were listening to the talking heads tell us small caps and industrials are going to outperform to catch up to tech and we watched those sectors start outperforming the tech. Does that sound familiar? That wasn't sectors "catching up", that was huge investment firms moving their money out of tech and into those areas to brace for the inevitable bear market. They are mandated to have a certain % of their money invested at all times. This is how the distribution phase works. While they're pumping the tech stocks, they're dumping their holdings and moving into safety to brace for the coming meltdown.
When we broke the 7 month trendline in September we were witnessing the start of the distribution phase. Once we break that distribution trendline we are set for a nice and steady decline. It may take 6 weeks, 6 months or 6 years, the duration doesn't matter as long as you're on the right side of the trade, you acknowledge the market's direction and you identify the trendline.
By the numbers.
MACD: At 110 we're still higher than we were in February before the market dropped off a cliff.
Stocks trading above their 50 day moving average: 78.81, we are very much at the top of that range.
200 Day MA: We are currently 13.5% above the 200 day, very much elevated.
Investor sentiment: We dropped from 55 to 44% of investors being bullish. Sounds like a big drop, but that still only puts us where we were in February before Rona hit.
Call options are outpacing put options by 69%! That is a very ominous sign.
What am I doing? I was short 9 days ago, I then added short positions both Monday and Tuesday. I'm using a stop equal to a 2% increase in SPX. I will add to my short positions once we drop through the secondary trendline. I'm also holding and buying several long swing positions with tight stops, I did very well with these swings this week. Remember, in the current phase there are a small amount of stocks that will vastly outperform the market.
I'd tell you this is merely just my opinion, but it's not, I'm trading based on the information I have.
What does the data show?
We had the quickest recovery from a bear market in 50 years? And we went from a market that was peaking in February to sectors that are clearly in their excess phase now.
In 2000 people were listening to the talking heads tell us small caps and industrials are going to outperform to catch up to tech and we watched those sectors start outperforming the tech. Does that sound familiar? That wasn't sectors "catching up", that was huge investment firms moving their money out of tech and into those areas to brace for the inevitable bear market. They are mandated to have a certain % of their money invested at all times. This is how the distribution phase works. While they're pumping the tech stocks, they're dumping their holdings and moving into safety to brace for the coming meltdown.
When we broke the 7 month trendline in September we were witnessing the start of the distribution phase. Once we break that distribution trendline we are set for a nice and steady decline. It may take 6 weeks, 6 months or 6 years, the duration doesn't matter as long as you're on the right side of the trade, you acknowledge the market's direction and you identify the trendline.
By the numbers.
MACD: At 110 we're still higher than we were in February before the market dropped off a cliff.
Stocks trading above their 50 day moving average: 78.81, we are very much at the top of that range.
200 Day MA: We are currently 13.5% above the 200 day, very much elevated.
Investor sentiment: We dropped from 55 to 44% of investors being bullish. Sounds like a big drop, but that still only puts us where we were in February before Rona hit.
Call options are outpacing put options by 69%! That is a very ominous sign.
What am I doing? I was short 9 days ago, I then added short positions both Monday and Tuesday. I'm using a stop equal to a 2% increase in SPX. I will add to my short positions once we drop through the secondary trendline. I'm also holding and buying several long swing positions with tight stops, I did very well with these swings this week. Remember, in the current phase there are a small amount of stocks that will vastly outperform the market.
I'd tell you this is merely just my opinion, but it's not, I'm trading based on the information I have.
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