S&P: A Parabolic Rise or Catastrophic Dive?

Is the S&P going to tank? Are we going to see  2018 as the year when…..

It almost has to be the year that this over-extended, over-stimulated bubble finally bursts – and when it does it’ll shed 40% to 50% in the first three months of the crash“. (Harry Dent)

Or are we going to see the parabolic rise predicted by some, Phil Anderson, who sees the bull not ending until 2025 – 2026.

As a trader, I find the long-term forecasts interesting and important as a context. But, I prefer to reply on Wyckoff and Steidlmayer to give me a clue on how to trade.

Right now, the longer-term indicators I rely on are not showing weakness.

Figure 1 shows the St. Louis Adjusted Monetary Base. A downturn in this chart will give us about a 6-month’s heads-up that money will flood Main Street. As a result, we’ll see an upsurge in inflation. The question is whether the FED will raise rates sufficiently quickly to stop hyperinflation. But, if it does that, we’ll see rates rise dramatically enough to cause a stock market bear to raise its head.

The second chart, Figure 2, is the Advance-Decline line. I’m looking for divergence before I’d be comfortable thinking a top may be in. No sign of one so far.

In the meantime, I’ll look to my charts to get me long.

Dec 29 had important price action clues for me. Instead of producing the reliable Xmas rally, we had a strong down day. I decided that the 29th would raise amber flags (i.e. a warning of weakness) unless we see a strong up day today. One sign of that would be a gap open that remains open by day’s end.

With that idea in mind, my strategy for today was a simple one:

  1. If there was a gap open in Globex, I’d buy the open.
  2. Stops below Friday’s low.
  3. I’d exit the position on a 15-min close below 45% of the open-gap.
  4. I’d re-assess at 9:30 EST. The open-gap is a more reliable pattern based on day session parameters.

An aside: Thanks to all who dropped me a line. I appreciate the comments.

FIGURE 1 St. Louis Adjusted Monetary Base

 

FIGURE 2 Advance-Decline Line

 

FIGURE 3 15-min S&P CFD