Ya'll know I don't like guessing. I've made it clear what the structure of the market - whether SPX, IWM, bond yields, metals - is likely pointing to "in my opinion" based on my study of market sentiment and historical analogous structures. I try to stay unbiased when I look at anything, whether its an index, a fund, an economy, or an individual stock and I try to focus on the most probable path that my experience can identify. It's HARD trying to guide others on direction and targets which is why I've largely avoided it unless I feel it's painfully clear.
Ok, that said, I'm going to try and guess what is coming. And it will likely be wrong. It's just a guess. If you trade what I say, you do so at your own risk.
We are essentially in no man's land. That means that multiple options are on the table. The most immediate downside path has invalidated. But don't get hung up on that. That merely means that we had a downside setup that was pointing to a potential breakdown in the markets, but the bulls were able to gain enough momentum to at least kick the can. It DOESN'T mean that we won't go down. It just means I don't have a blueprint to track it. Go back to when I was advising to be careful with NVDA in July as it had an imminent downside threat. I laid out a blueprint, and while it wasn't followed tick for tick, it mostly played out correct. I don't have such a blueprint right now.
So based on everything I've looked at, my guess is that the most likely scenario tomorrow is a bullish spike of some sort. How long it lasts is anyone's guess. I would study index movements from 2000 and 2007. Possible even 1990. There's tons of fractals which will not repeat but can rhyme. The most applicable to current economic, monetary policy, and stock market structure parallels is 2007, where the Sep 18th 50bps rate cut caused a short term spike that was quickly followed with the beginning of one of the largest corrections in market history. In 2000, the FED actually surprised the market by not raising rates in September. And that was an election year. The market was slightly volatile for a short period and then broke downward into what we now know was the dotcom bust. 1990 was the mini gulf war recession and the FED started its cuts in July with the market bottoming in October and being back to pre-rate cut levels in February of 1991. 1987 was black Monday in October. It's not very similar to where we are today, but it's an interesting case study nonetheless.
Quote:
Those cuts added fuel to a stock-market rally, with the S&P 500 up 31% in 1985, up 18% in 1986, and up another 31% through the end of September 1987, Colas noted.
Students of market history know what happened next. Black Monday - Oct. 19, 1987 - saw the S&P 500 plunge more than 20% in a single day, while the Dow dropped 23%. The S&P 500 ended the fourth quarter of 1987 with a loss of 23%.
"The Fed knows the cautionary tale of 1985-1986 and, at lower absolute policy rates now, they have even more reason to be cautious about the pace of rate cuts in 2024," Colas wrote. "Without an imminent recession, there is simply no precedent for +1.0 points of rate cuts this year."
Moreover, "stocks are already doing well enough that the risk of sparking an unsustainable rally (a la 1987) is very high indeed," he wrote.
Colas acknowledged the possibility that fed-funds futures are "trying to tell us something" about the potential for a recession.
1987 stock-market crash has lessons for traders convinced Fed will cut rates | Morningstar
The truth is that every situation is different and the market is not static. It never responds as expected, hence where just about every economist always ends up wrong and stupified.
One thing is clear and history screams it. Follow bond yields. When bond yields fall with unemployment rising, it's a clear cut sign that the economy is "most likely" moving into recession. Couple that with the multiple Hindenburg Omens that have now happened, and if you aren't prepared for significant downside in the markets, you are running out of time. I would be very strategic about what you chase upward and I wouldn't get caught up in FOMO here. We are in the middle of the worst month of average market performance with next month home to some of the worst crashes in history. This at a time where a former president running again has had two attempts at his life and his running mate was removed and replaced without a single voter having a say.
My advice is to protect your cash and have stops in place. Don't get caught with pants down. Have clear targets for upside. Be measured and controlled. Let's see what happens next.
"H-A: In return for the flattery, can you reduce the size of your signature? It's the only part of your posts that don't add value. In its' place, just put "I'm an investing savant, and make no apologies for it", as oldarmy1 would do."
- I Bleed Maroon (distracted easily by signatures)
