Warning Signs Of A Top; Short-Term

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August 30, 2020

Weekly Market Outlook

By Geoff Bysshe


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The news of last week was the Fed’s announcement about their “updated monetary policy strategy.”

The big change was to suggest that they would let inflation overshoot their 2% goal to prioritize getting unemployment as low as they consider realistic.

This probably isn’t much more than stating what the market already assumed they are currently doing, but it does change expectations for how they’ll act when inflation shows up without low enough unemployment.

The absurdity of the inflation debate is that we all know that the current policies are generating inflation.

It just depends on how you define it.

For example, several times this week I heard from customers who wanted to buy shares in TSLA and AAPL but were concerned that their prices are too inflated.

Fortunately, these great companies are attempting to keep inflation under control by reducing the price of their shares by 1/5 and ¼, respectively.

This will happen on Monday, so if you’re looking for TSLA or AAPL for a lower price than they were on Friday, Monday’s your day.  As you know, there are no guarantees that they’ll stay lower for much longer.

The problem with the current monetary policy isn’t that it is to slow to stimulate inflation. As I just pointed out, it’s been incredibly effective at inflating asset prices for well over a decade now.

So one take away from the Fed’s ‘new’ policy shift is that they’ll continue to generate the inflation that’s rising, and focus on the inflation data that’s muted by the components it tracks.

As a result, let’s focus on the area where inflation is rising with the question…

When will the SPY and QQQ stop rising?

The SPY and QQQ have momentum that makes it very difficult to identify a short-term top, much less a long-term top.

Right now, I won’t even suggest the idea of a long-term top, but there are a few indicators lining up that are worthy of your attention if you’re looking out for the prospects of a pause or pull back.

First, keep an eye on the 5-Day Up Down Volume Ratio shown in the chart below.

You can find this indicator in the “internals” section of our Big View product. As you can see by the circled chart points below, when this indicator exceeds .70 and turns down, the market tends to consolidate or selloff. Note, it’s important to wait for it to turn down.

Additionally, don’t assume the market will fall, wait for it to start getting weak.

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In addition to the Up-Down Volume, on Monday I’ll be looking at the intra-day trends of AAPL and TSLA on Monday to assess the mood of the market.

These two stocks will almost certainly be the headline de jour, and the direction they take relative to their Opening Range could serve as a good indicator for the market’s intra-day trend for the day.

On Monday, their stock splits take effect. Their prices will be lowered, and additional shares issued accordingly.

Both stocks have run up enormously since they announced the split on expectations that lower, post stock split, prices will attract new buyers and drive the share prices higher.

I don’t have a prediction about whether the actual split will induce even more buying, or it will mark a prominent day that will be later be described as, “buy the news, sell the split.”

However, I do have a plan to trade them and use them as a market indicator.

If they’re below their Opening Range (OR), stay away, and if the market is doing the same thing, be cautious. If they’re above their OR, look for the potential of a big trend day.

Additionals highlight from Big View include:
(links with [$] indicate premium member area)

If you have any questions or comments, I'd love to hear them in the comments box below. They' be posted when we read them.

Best wishes for your trading,

Geoff Bysshe

8 Comments

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    Cary

    Geoff,
    Would we watch the 5 minute or 30 minute open range break out on TSLA and APPL? Watching for .7 on Up/Dwn Vol is great insight!

    This needs to be a weekly column for you! I have come to look forward to and enjoy it every week.

    Cary

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      Cary

      Market already answered that question.

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    Joseph Breit

    Geoff , thanks for sharing your insights , your experience & perspective makes for a good,productive read .

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      Geoff

      Thanks Joseph. I'm glad to hear it's enjoyable and helpful.

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    Joseph Breit

    Any chance we could get your highlights from the big view at the end of each week ?

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      Geoff

      Keith covers it on the weekend.

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    Philippe Heroux

    Like Joseph, I would enjoy reading you on a weekly and a daily basis (even better). Having your analysis along with Mish and Keith would be a terrific trio combo.

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      Geoff

      Thanks Philippe,
      To your point and Joseph's, I'm planning to start posting more often in the Trades and Tutorials section of our blog. And if you have any requests for types of content/ topics let me know here.

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