Good morning. After a long holiday weekend the market is set to open at roughly the same levels it closed at this past Friday. A flat start to the week.. However I don't expect that to last very long.
We had a great momentum, buy signal off the lows of last Christmas eve. The market went on to hit new all time record highs before a momentum sell signal pointed to that pull back we saw at the start of this month.
We then had a momentum buy signal that was followed by some upside, but clearly nothing like what we saw when the previous signal came late last year.
And now, it looks like the momentum is already starting to wane, giving a very similar look to what we saw last October.
Also on a 5 year time frame, momentum is coming close to getting a trigger that we saw at the start of 2018 and at the September 2019 highs.
I guess what I am saying is.. the market is giving is signs that more possible downside lies ahead.
The two year chart - above, shows momentum starting to wane after a decent bounce attempt from the 2019 lows.
On a longer term time frame, the five year chart below shows a looming negative monument sell trigger, one which preceded previous recent declines for the market.
A break of $SPY support at $278 opens up a test of the previous channel support at $260.
Small caps also remain a concern. They, unlike the S&P500, did not hit new record highs this year. Actually they have been quite the laggard.
Key long term support was broken last week.
And the 5 year sell signals have been spot on in calling for market weakness over the last few years. Sprinkle in all the named excuses to be selling with China and Brexit still topping the current list, and the I wouldn't be surprised to see another day or two this week where the market rolls out of bed and then rolls lower most of the rest of the day.
And don't let that early morning strength fool you. Early strength was around in late September and Early October as well as in early December.. and yet by mid-day the action invariably reverses lower - with the early strength morphing into a day of selling.
Sell the morning rip... afternoon swoon... whatever you want to call it... has been the hallmark of a market setting up for downside, not a rally.
— UPBOptionMil (@UPBOptionMil) December 12, 2018
— UPBOptionMil (@UPBOptionMil) October 4, 2018
Clearly nothing is set in stone. I think this market is heading higher this year and we will see new all time record highs, with $SPY $300 a distinct possibility. However I think we could be looking at more downside over the short to medium term.