Date: 12/9/2022
Author: Chris Hood
The past couple of weeks have been excellent for my P/L.
However, the market direction in the last few days has been surprising. I fully expected a follow-through on SPY’s down move Wednesday.
It didn’t happen that way.
As much as I’d like to say it surprised me, I don’t think the market can do anything I haven’t seen in the past two decades.
We retested the 200-day moving average and headed down.
A perfect scenario if you’re positioned short, but not so great for the bulls out there.
But don’t expect the downtrend to be smooth.
I always tell people that the market is designed to go up over time. Period.
Corrections and bear markets are the exception, not the rule.
What are my indicators suggesting might happen over the next couple of weeks?
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Don’t be left behind.
Look at the chart of SPY.
You can see the obvious downtrend – from the top left towards the bottom right.
Plus, you can see that we’ve been consistently failing at or around the 200-day MA (blue line). Until we break this and hold, don’t look for any bullish resurgence.
My analysis suggests a potential massive drop over the next week. From our current level of $396.24, we could see a price of about $355.00 by the 16th if we can’t get a close above $400.00.
There’s no guarantee of this, but the prospect is scary if you aren’t positioned correctly.
Perhaps a reversion to the mean after the recent pullback from the 200-day MA or pre-Christmas exuberance. Whatever it is, I don’t trust it.
Think of the market as some horror movie monster.
A Jason Voorhees or Freddy Kreuger type. (Yes, I realize these are 1980’s movies, but I’m an old guy, so cut me some slack.)
They never fall easily.
It takes quite a bit to get the market on the ropes, and it will fight back every step of the way.
You must run over it with a bulldozer, set it on fire, or launch it into space. The finale is always grand, just like these massive market drops.
But just when you think it’s dead, it’s peering at you through the window.
There’s always a sequel.
While this might not be a problem for passive, buy-and-hold investors with a 30-year time horizon, it can kill short-term traders.
The critical point is never to assume you know when the bottom or top is in.
Follow your signals, stick to your plan, and hedge your portfolio with insurance if you have any doubts.
Cheers,
Chris Hood
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