Weekly Market Update

[Jeffreauxdawg]

Not much has changed. Last week the market ran right up to the June highs of 3233 on Monday. It spent the rest of the week consolidating up near that level. You may have noticed the big boys (FB, APPL, AMZN, MSFT, GOOG) were down for the first time in a long time. That's because the market was rotating into weaker stocks.

This is all a sign of the market building energy for another move higher. The tell will be the 5 big boys. They represent such a large share of the overall market, it cannot go up without them leading the way. Watch them and you will know where the market is going.

View attachment 16916

3233 will not have the same level of resistance as before, but up around 3255-3328 is where the supply zone lives. Effectively, there will be a lot of sellers in this are because it was a gapped over back in February. If we get to that area, it could represent a chance for a big pullback sooner rather than later.

View attachment 16917

 

[Seinfeld]

Not sure if people are just tired of trying to figure out what’s going on or what, but it’s been a quiet crowd this week.

Out of curiosity, how concerned are you about the election? It seems as if pretty much everything Biden’s talked about in the last 2-3 weeks would feasibly have a negative impact on the market

 

[JungRebel]

Can someone explain to me like I'm a child why a temporary downturn in the market after a Biden election would be bad for me? We have a 401k and an IRA we contribute to bimonthly and some cash on the side that we are waiting to use once an inevitable downturn occurs. It just seems to me that the market taking a hit for Biden would be temporary and we could get some pretty good deals in the mean time. What am I missing? Everything seems overpriced at the moment and we are in it for the long haul.

 

[greenbean.sixpack]

Concur, as long as it is only a temporary dip, the market will just be on sale with good buying opportunity. Personally, I'm probably going to move most of my current portfolio to safe investments, but will keep on dollar cost averaging in high growth investments.

If the Ds get the POTUS AND senate and spend all the monty they want to spend, it could eventually come back to roast with a protracted and severe down turn. At the least, tax rates will likely rise, and since they think anyone with an income over 6 figures is rich, it may be bad for all of us. For many, a low six figure income is certainly not living high on the hog.

 

[greenbean.sixpack]

Not much has changed. Last week the market ran right up to the June highs of 3233 on Monday. It spent the rest of the week consolidating up near that level. You may have noticed the big boys (FB, APPL, AMZN, MSFT, GOOG) were down for the first time in a long time. That's because the market was rotating into weaker stocks.

This is all a sign of the market building energy for another move higher. The tell will be the 5 big boys. They represent such a large share of the overall market, it cannot go up without them leading the way. Watch them and you will know where the market is going.

View attachment 16916

3233 will not have the same level of resistance as before, but up around 3255-3328 is where the supply zone lives. Effectively, there will be a lot of sellers in this are because it was a gapped over back in February. If we get to that area, it could represent a chance for a big pullback sooner rather than later.

View attachment 16917

Thanks! This is awesome. If you can give me two days heads up on a projected sell off, I'll be happy to become a paying client.

 

[Jeffreauxdawg]

The biggest things to me about Biden winning are related to taxes and wages. There is not much coverage regarding typical election topics these days, but Biden has laid out to tax policies that will very much change the markets.

#1. Biden intends to raise corporate taxes to 28% from the current 19%. Goldman Sachs estimates this will lower earnings of S&P500 companies by about 12%. In theory, when we buy stocks, its nothing more than a piece of ownership of a company that gives us a right to our proportional share of current and future earning. If earnings declined by 12% it would lower the market 12%, but there are a lot of other dynamics to the market. With that said, If I had to guess it would have a 5-10% overall effect on the market.

#2. This is the big one to me. Long term capital gains and dividends will be taxed ordinary income. This will change the market in a massive way in my opinion. Currently if you own as stock for 1 year or more, when you sell it the profits are only taxed at the long term capital gains rate of 15% if you make between $40-450K. If less than $40k its zero. More than $450k its 20%. Biden is proposing no matter how long you own a stock any income earned will be added to your annual income. I will stay away from my feelings on it and just focus on how it affects the market. Some worry you would have a lot of capital leave the US for foreign markets and that would devalue the market. The biggest thing to me is passive investing will have much less attractiveness than it does today. It's not hard for an active trader to beat the index if there were no taxes. But if everytime I make a winning trade, I have to account for 25-40% of the gains in the form of a tax that adds up.

For example. If you make $175K a year and you buy a share of amazon at $3000 and hold it for a year and sell it at $3500 dollars you would have a gain of $500, a tax bill of $75 (15%), and a net profit of $425 after tax. If you bought it at $3000k and sold it at $3300 in 3 months. Jumped back in a month later at $3200 and sold at again at $3500 7 months down the road you would have a $600 gain, a tax bill of $192 (32%), and a net profit of $408.

The buy and hold mentality has long been preached in large part, because its hard enough to beat the market.. It's really hard after the extreme tax advantages of buying and holding. The benefit of active trading is it allows actual price discovery on a real time basis... If 75% of the shares of a stock are held by buy and hold mutual funds/investors, you tend to find much less accurate valuations in the market as a whole.

The final piece of the pie is a federal minimum wage of $15 per hour. This will (shock) the market, but honestly after everything that has gone on during this pandemic with the big unemployment assistance and stimulus. Any company is going to have to pay that much going forward to get help. Gas stations and fast food are already paying that in the big cities where most publicly traded companies have most of there employees.


So the short answer how concerned am I about the election in regards to the market? Not at all. It doesn't matter who wins in my opinion. You play the cards that are dealt. Over the long run, the biggest factors in the performance of the market have very little to do with who's in the WH, it has everything to do with how long its been since the last time the market crashed and everyone got their *** handed to them. My biggest problem with the market is the fact that the Fed keeps sticking their nose in at every sign of trouble... My next Weekly update will be a lot more about taxes, interest rates, and inflation. Hint: 1 of the 3 is going up big time over the next decade no matter which way we slice the pie.

View attachment 16929

 

[Jeffreauxdawg]

If I could do that on a regular basis... It would be flat screens for errrrybody.

ETA. Here you go Greenbean. I will get a little more in depth on what I have seen the past couple of days. I'm going to start with the SPX which is just the S&P500 index itself. It's what I always use for charting the weekly updates. But in my day to day trading, I actually focus on the SPY. Which is the main ETF for actually trading/buying the S&P500. The SPY is usually pretty much tracking number was with the S&P500 if you divide by 10. So S&P500 at 3000 roughly equals SPY at 300.

Now at the beginning of the week I mentioned 3255 on the SPX as being a critical number. Well we melted up to it yesterday and got denied in the final few minutes of trading. So the market gapped up over it last night. Today it ran sideways all day and fell in the last 30 minutes. This is what we call filling the gap.

The picture below shows a 30 minute play by play. Each candle represents 30 minutes. The "wick" of the candle represents highest and lowest prices reached during the 30 minute time frame. The body of the candle represents the open and the close. If the candle isvred it opened it the top of the body of the candle and closed at the bottom. If the candle is green it opened at the bottom and closed at the top.

The 2 red candles below circled in yellow represent the last 30 minutes of the regular session (2:30-3:00 pm CDT.) The one on the left was yesterday and you can see it opened the period (2:30) at about 3253 and traded up over 3255 to about 3258 before falling and ultimately closing the day below 3255 at 3251.5 ish. The second yellow circled candle is the final (2:30-3:00 CDT) period from today. It pretty much did the opposite thing. It started above 3255 fell to 3247 and rallied at the close to finish above at 3257.29.

View attachment 16930

What do these two things mean? Well first, it's obvious that the number is important. The market fought to stay below and above it in consecutive days. This happened a few weeks ago for about 7-8 straight days around 3123 ish. Secondly, on its face, closing above the number is bullish. It means the buyers had more power at the close than the sellers... St least on the face.

Now this is where the SPY comes in. 325.65 is the line in the sand that matches up with 3255 on the SPX. In this picture of the SPY, I am zooming out to show you the last few weeks. You will see 2 gold lines that have formed the upper and lower trends for the SPY over the last few weeks. When the market is going up lows are going higher at a faster rate than the highs, it forms this pattern... It's called a rising wedge. It effectively suggests the market is running out of juice. This pattern can be verified if volume decreases as it continues up within the wedgeish pattern. Those little green and red ticks at the bottom of the chart represent volume... It's hard to see, but volume has decreased about 35-40% on the daily average since the pattern began until today.

View attachment 16931

Finally we will zoom back in to look at today in the SPY. Everything to the right of the pink vertical line is today's action. You can see we came down in the middle of the day and tested that support at 325.65 quite a bit. Remember how on the SPX at the end of the day we crashed back down and recovered back up above the 3255 level? Well that didn't quite happen on the SPY... It closed below. Not only did it close below, it jumped back inside the rising wedge pattern and continued to reconfirm the trendline.

View attachment 16932


So looking at all of it, here is my two cents. That rising wedge is definitely in play. On top of everything we discussed, the rising wedge just happens to end this Friday (when a wedge ends if the market is still in it, it will usually jump hard in one direction or the other.) This Friday is significant because the $600 unemployment ends this week. The single argument for why the market can go up with 20-30 million people unemployed is that they actually have more money by not working. If that ends....?

We are also at a real sticking point in valuations. You have TESLA, AMAZON, and FB extremely overvalued in my opinion and MSFT, APPL, & GOOGL are way too expensive for most people to buy. The only way the market goes up at this point is with those guy to at least hold water and everyone buy up less attractive stuff like energy, retail, travel, and banks. Or just continue paying more and more for the big boys.

I'm watching unemployment benefits and TSLA. If it gets announced before Friday it could be the push the market needs. If TSLA doesn't report a profit tomorrow evening or if no unemployment extension is announced by Friday I am going to expect this rising wedge to breakdown hard and fast.

As always, advice is worth what you pay for it and I haven't got a dime for mine yet. But yeah, this week is looking pretty big to me.

 

[Jeffreauxdawg]

Can someone explain to me like I'm a child why a temporary downturn in the market after a Biden election would be bad for me? We have a 401k and an IRA we contribute to bimonthly and some cash on the side that we are waiting to use once an inevitable downturn occurs. It just seems to me that the market taking a hit for Biden would be temporary and we could get some pretty good deals in the mean time. What am I missing? Everything seems overpriced at the moment and we are in it for the long haul.

You are not missing anything in your analysis. If you have a long investing time horizon big dips are a great buying opportunity. I am honestly using this time to focus on real world economics to free up more cashflow for investing once/hopefully/if this market corrects. I always use the analogy of a house. If the neighbors house is for sale and you really like it, buy it for fair market value. The stock market is like that with companies and one twist, its an auction. I feel like way too many people focus on the auction and not the house.

For the life of me I cannot come up with a reason of why TESLA is worth 539% more now than it was 9 months ago. Based on growing sales 15% per year, which is what TSLA grew sales last year.. it would take 21 years for TSLA to get to a price to sales ratio comparable to Toyota. I think they will find every year it becomes increasingly difficult to grew sales every year.

TSLA is the extreme, but the overall market is not much better. The forward PE ratios are near all time highs as it stands even with the significant global risk of Chinese trade wars and a 2nd wave of Coronavirus... There is a case to be made about the fact that there is nowhere else to get returns with interest rates so low. And equities can be an inflation hedge... But if this bubble doesn't let some air out I am going to eventually focus on alternative investments like commodities, real estate, crypto, and even equity crowdfunding. I still remember the dot com bubble... When over the course of 3 years the SPY slowly, but surely dropped 50%.

This is where we are on valuations from then until now.

View attachment 16934

 

[turkish]

Can someone explain to me like I'm a child why a temporary downturn in the market after a Biden election would be bad for me? We have a 401k and an IRA we contribute to bimonthly and some cash on the side that we are waiting to use once an inevitable downturn occurs. It just seems to me that the market taking a hit for Biden would be temporary and we could get some pretty good deals in the mean time. What am I missing? Everything seems overpriced at the moment and we are in it for the long haul.

You said long haul, but you’re asking about short term. In the long haul, do you think your portfolio will do better after 20 years (or whatever your timeline is) of tax policies Joe Lee mentioned or not? Now, obviously he wouldn’t be potus for 20 years, but that’s the basis of comparison. I know what heftier capital gains tax will do to me. And I know what higher corporate tax rate will do to my employer.

 

[JungRebel]

Well that's the thing, I dont plan to retire for another thirty years. The only short term thing I'm looking at is moving more cash into the market when it looks like a good value. I'm not trying to time the market per se, just get a better value than what's available now. But as far as the taxes go, its likely there will be at least 2 more democrats and 2 more Republicans elected in that time frame. Hard for me to know what to root for. In my mind, if Joe is elected and it's an unmitigated disaster for the markets for four years... well, if we keep our jobs and put extra back during that time frame, wouldn't we come out nicely in the long run when the markets rebound? Forgive me, I should have learned all this and started saving a long time ago but it took us a while to get good enough jobs we felt secure enough to do more than put a few months savings back, but I want to learn as much as I can. I usually read a few articles on 401ks and IRAs a week.

The most important thing for us is that we want to provide for a family and retire while we have time to enjoy the golden years, working at our leisure if we so choose. It's a bigger goal than I could have imagined it actually was years ago, but we want to shoot for it and be as smart as we can about how we pursue it. The tax stuff is hard to wrap my mind around right now, I havent read enough yet. I am contributing a few percentage points above my match but even then I've read that that's not necessarily wise and should instead go to my wife's IRA. Thing is, we started a bit late and want to play catch up to make up for lost time - not by timing the market but by putting as much away as we can now so it can grow and getting the best value for long term growth we can as we do so.

As far as raising the minimum wage, it is certainly too low to live on even in many places in Mississippi. How does it affect someone like my family who make about $40 an hour combined? I don't know, I do know that we live comfortably for ourselves and can save and invest, our mortgage is less than a fourth of our income e.g. I just cant predict what a change like $15 an hour does to labor in this country. There are too many variables for my humanities educated mind to contemplate.

 

[turkish]

Speaking strictly for your portfolio, you want the best economic conditions at any given time. To prefer a period of stagnation at ANY point in your timeline makes no sense, unless you have some market timing inclination or are eyeballing specific oddball sectors.

I’d suggest learning about compound interest and do some simulations for yourself. 4 years out of 30 is not insignificant. 8 out of 30 is nearly a quarter! Not to mention your assumption that any created stagnation would be later corrected like nothing ever happened. Hope ain’t a strategy.

 

[Shamoan]

moving forward, i feel like there will be a big dip before the election, which makes me nervous, but im probably wrong and will just ride it out. no data or links to support that, just a gut feeling.

 

[Jeffreauxdawg]

There are taxes you see and taxes you don't see... The dollar is in the process of crashing as we speak. The dollar currency index just broke through resistance yesterday at 95.72... It's now at 94.87. In February before the crash it was right around 100.00.

Companies that sell a lot of goods and services overseas will benefit, but we the people usually do not. This is the first step in real economy inflation. We cannot continue to print money and run the massive deficits we have and are now accelerating.

There are only two ways to control inflation. Raising interest rates and raising taxes.

For the market, raising corporate tax rates will hurt after tax earnings, but it doesn't hurt the companies themselves to badly. Raising interest rates could be a death knell for some of these massive debt burdened companies. They are stuck in a cycle of refinancing debt at lower interest rates to pay off the old debt and once rates go up, that option gets to expensive to sustain.

For people, raising rates means more expensive mortgages, auto loans, student loans, etc. It also encourages savings because you actually get a return and you are more inclined to pay cash for stuff instead of financing. The last decade of "growth" has been driven by low interest rates. We buy $300k houses for the same monthly mortgage as $250k would be at 5-6% rates. We buy $50k cars on 72 month no interest loans rather than $39k at 7% for 48 months.

I am going to lay this all out more next week, but we have 3 paths ahead. The 3 bastards. Higher taxes, higher interest rates, and higher inflation. It will probably be a combination of the 3... But even as a life long fiscal conservative, the one that is going to be most palatable for the economy may end up being the tax increases Biden is proposing. (I admit I have fully given up on either party cutting spending enough to ever balance a budget again.) So it could be that Biden's tax increases could be the best of the bastards, so long as spending doesn't outpace it. (Wishful thinking I know.)

More to come in defending my position in a few days

 

[JungRebel]

Correct me if I'm wrong, but if I understand compounding interest correctly, the more I put back now in a 401k or IRA, the longer it has to grow, so I am putting back as much as I can now with the hope of 'catching up' on some years I missed when i could've been investing. Is that a bad strategy? And also, if i understand correctly, the cheaper the unitd of the stocks or funds I am investing in, the more shares I can get now, giving me more to compound over the coming decades. Am I misunderstanding?

 

[Go Budaw]

I’d say that Goldman Sachs study is flawed. The market sure as hell didn’t shoot up 14% immediately after the Trump tax bill was passed, even though the tax rate dropped from 35% to 21%. The facts are that all the big S&P 500 companies play the game...they dampened any market impact of the tax reform by doing a **** ton of stock buybacks, and also they keep a lot of earnings abroad to shield them from taxes that they would owe. Its well documented that Apple, Amazon, and others haven’t been paying hardly anything in corporate income taxes...even at the old 35% rate, because they all use the loopholes that still remain intact to this day. Any impact from another tax reform that bumps the rate back up again will be similarly received by the market.

 

[turkish]

Correct me if I'm wrong, but if I understand compounding interest correctly, the more I put back now in a 401k or IRA, the longer it has to grow, so I am putting back as much as I can now with the hope of 'catching up' on some years I missed when i could've been investing. Is that a bad strategy? And also, if i understand correctly, the cheaper the unitd of the stocks or funds I am investing in, the more shares I can get now, giving me more to compound over the coming decades. Am I misunderstanding?

What good is a share that has low price/value if they stay that way? You want $ in your portfolio, not units. Now if you start looking at individual stocks and you think they are worth x, then share price comes into play. Example: long time big oil stock prices that are currently half of what they have been in recent years. IF you think they’ll come back, they’re at a cheap price. This doesn’t hold so well for funds that most 401k plans use.

If/when the market stagnates and corporations start laying off, investing less, are you really going to have the discipline to go “all in” like you seem to be alluding? For many, that is the time when they’re afraid for their jobs and are unwilling to gamble their savings. For many, this is precisely the time when their company match gets slashed such that they CANNOT increase investment in their retirement.

To summarize, buying at a lower price is great, IF you are able to do so and IF the prices actually recover well. Since I’m not an active researcher, trader, I just generally don’t want to see stagnation, recession.

I don’t mean to imply these situations, conditions are related to one candidate or another.

 

[Jeffreauxdawg]

You are correct. The more you buy now, the more time it will have to appreciate. Market timing is not usually worth the effort in a scenario where you are making a monthly contribution as in a 401k. You will buy a little bit a high prices and and a little bit more at low prices. One of my recommendations is to learn about what you are buying in your retirement account. Take the time to read up on the options available and understand what you are buying. If you are 20-30 years from retirement, it would make sense to have a lot more exposure to small growth companies than if you were nearing retirement.

My next recommendation for someone your age is to be able to increase your contribution when the time is right. For the last 11 years we have been in a bull market that has effectively gone up on a consistent path. Here is a monthly chart showing what I mean. There were a handful of little dips, with the biggest being at the end of 2018, but the bull market didn't break until March of this year. It was the longest bull market in history. Around a 400% gain in the S&P500.

View attachment 16938

This was effectively the market of the 2010's. Now let's look at the 2000's. You will see we started the decade at the very top of the market. And what followed was 13 years of trying to get back to that point. I will explain the yellow lines in a minute. So as far as market timing goes, nobody knows where the top or bottom of a market is until its in the rearview mirror for quite a while. But you can get a pretty good idea if you are high or low based on valuations.

View attachment 16939

So looking at the 2 charts, if you had to guess which one might more resemble the 2020's.. which one would you pick? I know my answer. Hint... 1989 to 2000 looks just like 2009-2020 with right around a 400% gain.

Now for the yellow lines. Each one represents a 10% decline in the market from the peak, give or take. If you think the next 10 years are going to look like the 2000's, a strategy I am going to employ is set a baseline amount I want to contribute. For rounding purposes, lets say 10% of my income. Each time I see a 10% pullback in the market, I am going to increase my contribution 25%. So if we have a 40% pullback by 2023 (like we did from 2000-2003) I will be contributing 20% of my income. This helps my dollar cost averaging weight more to the value at the bottom of the market. It also doesn't keep me from missing out if I am wrong and the market continues up. Because if I am socking away 10% in a bull market, I'm winning anyway. So in the peaks I am taking extra money to create financial flexibility to ramp up contributions during the valleys.

That's the closest thing to "market timing" advice I would have for something like a 401k where you are contributing a toward longterm goals on a regular basis. If you had a big windfall and a lump sum pile of cash.. That's when "market timing" makes a little more since.

 

[UpTheMiddlex3Punt]

I made a similar chart years ago with presidential party versus MSU football winning percentage. We do much better when a Democrat is in the White House.

I know, it's definitely one of those spurious correlations (https://www.tylervigen.com/spurious-correlations).

 

[Jeffreauxdawg]

Part of the tax plan is a 15% minimum on book profits for corporations with over 100 million or more in net income. There is no real way to offset this other than to lose money. Biden has repeatedly called out Amazon on not paying any taxes. Zion research has estimated 117 companies in the S&P500 have more than 100mn in net income and tax rates lower than 15%. That group would pay out an extra $37 billion, half of which would come from Berkshire Hatahaway, AT&T, Intel, Duke Energy, and Amazon.

After tax earnings will definitely go down. No way around that. As for what the market will do, that's alway a crapshoot. For the record the S&P Jumped about 12% in 12 weeks when the Trump tax cut legislation was announced on Nov 2nd 2017 until January 22nd of 2018. Even before that, there was a 25% increase in the S&P500 from the day after the election until the day the legislation was announced... I think a big part of that run up was pricing in the tax cuts before they even happened.

 

[Quincy A. Wagstaff]

View attachment 16941
The Fed will do whatever it takes to support the stock market.

 

[Go Budaw]

Part of the tax plan is a 15% minimum on book profits for corporations with over 100 million or more in net income. There is no real way to offset this other than to lose money. Biden has repeatedly called out Amazon on not paying any taxes. Zion research has estimated 117 companies in the S&P500 have more than 100mn in net income and tax rates lower than 15%. That group would pay out an extra $37 billion, half of which would come from Berkshire Hatahaway, AT&T, Intel, Duke Energy, and Amazon.

After tax earnings will definitely go down. No way around that. As for what the market will do, that's alway a crapshoot. For the record the S&P Jumped about 12% in 12 weeks when the Trump tax cut legislation was announced on Nov 2nd 2017 until January 22nd of 2018. Even before that, there was a 25% increase in the S&P500 from the day after the election until the day the legislation was announced... I think a big part of that run up was pricing in the tax cuts before they even happened.

It will affect after tax earnings, but when has anyone ever cared about actual earnings in the stock market? Sounds silly, but its true. AMZN is up over 50% from this time last year (with many analysts suggesting they still are short of their price target and are a bargain), with their earnings only up about 25% and everyone knowing they can’t sustain 50% YoY EPS growth for any period of time. The market as a whole is ridiculously overvalued as it relates to actual earnings and EPS.

And I’ll also point out in your chart that the market saw less of an increase over Trump’s 3 years and 2 months (with a 14% corporate tax reduction in place for 2 of those years) than Obama did in either of his terms with the higher tax rate in effect. Its hard to quantify with so many moving parts, but there’s not a lot of evidence to say for sure that the tax reform led to a major bump up in the market over the long haul. And of course a part of that is probably uncertainty about whether or not that reform will remain in place beyond 2020, but that is also very difficult to quantify.

 

[Jeffreauxdawg]

The Fed will do whatever it takes to support the stock market.

You don't get it...

The stock market is forward looking... It's looking forward another quarter or two for the Fed to start printing more money.

 

[Jeffreauxdawg]

I am in complete agreement with everything you said. My feelings on the next 2-3 years:

We have a 2008 level of economic destruction courting a 2000 level of market valuations. The relationship is serious. Within a few years, they will have a baby that resembles the 1970's era of stagflation.

 

[horshack.sixpack]

Can someone explain to me like I'm a child why a temporary downturn in the market after a Biden election would be bad for me? We have a 401k and an IRA we contribute to bimonthly and some cash on the side that we are waiting to use once an inevitable downturn occurs. It just seems to me that the market taking a hit for Biden would be temporary and we could get some pretty good deals in the mean time. What am I missing? Everything seems overpriced at the moment and we are in it for the long haul.

Depends on if it is really short term. Democratic election wins create economic pullback by companies until they see how "bad" the administration is going to hit them with regulations and taxes. I recall being on a business trip during election week when Obama first got elected. Our purpose was to finalize an office location in a new city (planned expansion) and to interview potential staff for that office. The morning after the election, the company canceled everything for the new location and pulled us back to the home office. Wasn't until near the end of Obama's last term that we opened that office.

 

[greenbean.sixpack]

If I could do that on a regular basis... It would be flat screens for errrrybody.

ETA. Here you go Greenbean. I will get a little more in depth on what I have seen the past couple of days. I'm going to start with the SPX which is just the S&P500 index itself. It's what I always use for charting the weekly updates. But in my day to day trading, I actually focus on the SPY. Which is the main ETF for actually trading/buying the S&P500. The SPY is usually pretty much tracking number was with the S&P500 if you divide by 10. So S&P500 at 3000 roughly equals SPY at 300.

Now at the beginning of the week I mentioned 3255 on the SPX as being a critical number. Well we melted up to it yesterday and got denied in the final few minutes of trading. So the market gapped up over it last night. Today it ran sideways all day and fell in the last 30 minutes. This is what we call filling the gap.

The picture below shows a 30 minute play by play. Each candle represents 30 minutes. The "wick" of the candle represents highest and lowest prices reached during the 30 minute time frame. The body of the candle represents the open and the close. If the candle isvred it opened it the top of the body of the candle and closed at the bottom. If the candle is green it opened at the bottom and closed at the top.

The 2 red candles below circled in yellow represent the last 30 minutes of the regular session (2:30-3:00 pm CDT.) The one on the left was yesterday and you can see it opened the period (2:30) at about 3253 and traded up over 3255 to about 3258 before falling and ultimately closing the day below 3255 at 3251.5 ish. The second yellow circled candle is the final (2:30-3:00 CDT) period from today. It pretty much did the opposite thing. It started above 3255 fell to 3247 and rallied at the close to finish above at 3257.29.

View attachment 16930

What do these two things mean? Well first, it's obvious that the number is important. The market fought to stay below and above it in consecutive days. This happened a few weeks ago for about 7-8 straight days around 3123 ish. Secondly, on its face, closing above the number is bullish. It means the buyers had more power at the close than the sellers... St least on the face.

Now this is where the SPY comes in. 325.65 is the line in the sand that matches up with 3255 on the SPX. In this picture of the SPY, I am zooming out to show you the last few weeks. You will see 2 gold lines that have formed the upper and lower trends for the SPY over the last few weeks. When the market is going up lows are going higher at a faster rate than the highs, it forms this pattern... It's called a rising wedge. It effectively suggests the market is running out of juice. This pattern can be verified if volume decreases as it continues up within the wedgeish pattern. Those little green and red ticks at the bottom of the chart represent volume... It's hard to see, but volume has decreased about 35-40% on the daily average since the pattern began until today.

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Finally we will zoom back in to look at today in the SPY. Everything to the right of the pink vertical line is today's action. You can see we came down in the middle of the day and tested that support at 325.65 quite a bit. Remember how on the SPX at the end of the day we crashed back down and recovered back up above the 3255 level? Well that didn't quite happen on the SPY... It closed below. Not only did it close below, it jumped back inside the rising wedge pattern and continued to reconfirm the trendline.

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So looking at all of it, here is my two cents. That rising wedge is definitely in play. On top of everything we discussed, the rising wedge just happens to end this Friday (when a wedge ends if the market is still in it, it will usually jump hard in one direction or the other.) This Friday is significant because the $600 unemployment ends this week. The single argument for why the market can go up with 20-30 million people unemployed is that they actually have more money by not working. If that ends....?

We are also at a real sticking point in valuations. You have TESLA, AMAZON, and FB extremely overvalued in my opinion and MSFT, APPL, & GOOGL are way too expensive for most people to buy. The only way the market goes up at this point is with those guy to at least hold water and everyone buy up less attractive stuff like energy, retail, travel, and banks. Or just continue paying more and more for the big boys.

I'm watching unemployment benefits and TSLA. If it gets announced before Friday it could be the push the market needs. If TSLA doesn't report a profit tomorrow evening or if no unemployment extension is announced by Friday I am going to expect this rising wedge to breakdown hard and fast.

As always, advice is worth what you pay for it and I haven't got a dime for mine yet. But yeah, this week is looking pretty big to me.

Should I considering moving into safer investments tomorrow (Friday)? I'm 6 years from retirement and my risk tolerance gets less each year. I'm full in now. I'm not going to stay safe forever, just don't want to go through another 2008. I'm about back to my high on 19 Feb 2020 (minus the max contributions and match).

 

[Jeffreauxdawg]

Should I considering moving into safer investments tomorrow (Friday)? I'm 6 years from retirement and my risk tolerance gets less each year. I'm full in now. I'm not going to stay safe forever, just don't want to go through another 2008. I'm about back to my high on 19 Feb 2020 (minus the max contributions and match).

I have no idea with your personal risk tolerance, financial situation, etc. A good CFP would be better qualified than me to give you the overall strategy to your portfolio. But if you are fully invested in equities (Stocks, Mutual Funds, Etfs) within 6 years of retirement I am comfortable saying, yes... please take some of that off the table. 30-50% at this point would be a starting point. You can put that into some kind of high grade bond funds, some precious metals, treasuries... Lot's of options, but yes.. I think you should take some risk off the table. We are less than 4% from an all time market high. We are heading into an extremely uncertain time over the next 4 months... Don't worry about missing out on the upside. Protecting what you have is critical at this point. You can leave some of your chips on the table, but I highly discourage leaving them all in at this point.

For an accurate layout of the future, especially if your getting close to retirement. A CFP is worth their weight in gold in helping you identify proper tax strategies and guide your through this stuff. You can hire them like an accountant with a one time fee or pay them an annual fee. (Anyone charging commissions these days I would avoid.)

If you are a true do it yourself type, there are some good tools online to help you identify how to diversify. Here's a simple 12 item questionnaire from Vanguard that can give you an idea of what your diversification should look like.

https://personal.vanguard.com/us/FundsInvQuestionnaire

If you are a true renegade/maverick, you can look at the 3 fund portfolio used by Bogleheads. (John Bogle was the founder of Vanguard and believed in low cost index funds. Bogleheads are his fan boys so to speak that swear by his teachings.) The 3 fund portfolio is basically splitting your assets into 3 total market index funds (US stocks, International Stocks, and Total Bond Fund.) Aggressive (10+ years from retirement) investors would have more exposure to the stocks (64% US Stocks, 16% International Stocks, and 20% Bonds) and your rebalance every quarter or so. The most conservative might be 80% bonds and 20% stocks. If I were 6 years away from retirement right now... today. This is the mix I would have in my retirement accounts:

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I have heard some people talk **** about the Bogleheads and the 3 fund portfolio over the years. The either don't know what they are talking about or are pissed off because they are missing out on a commission. Here is the link to the Bogleheads site... Be warned, once you get into those forums you are entering a cult unlike any other...

https://www.bogleheads.org/wiki/Three-fund_portfolio

So the official recommendation is go ahead and get 30-50% or more out of equities asap. Tomorrow will be ideal. The market may go up or down 1000 pts after you do, but that's okay. Rest assured that if you don't it will go down when you least expect it. The Vanguard questionnaire above will help you determine the right amount to close out tomorrow. Once you do that, you don't have to worry about the other half tanking on you. In the dark of the night. If it does, you have plenty of other assets to hold the fort down until equities turn back around. It would almost be a good thing for the market to tank at that point for you... You would be able to get in at lower asset valuations during your last 6 years of working and even if it hasn't fully recovered, 30-50% of your nest egg is stable. Call it one last chance to "buy the dip" while you are still working and saving for retirement. Once valuations and the economics have shaken out down the road, maybe you can get more aggressive with your allocation at that point.

Once you get the percentage out I still recommend looking for a CFP to help you build a long term plan (I am getting ready to go through a complete overhaul with a CFP myself and I am still 20+ years from retirement.) Even if you don't intend on using the CFP as an advisor, a good once over every few years would be well worth the money to help you plan for taxes and such.... Its easy putting money into retirement, getting it out the right way is the key to making it last.

Final note. If you do become a Boglehead down the road... Don't come back here telling me how stupid I am all the time.***