Today could be a big day for the stock market.
One hour before the market opens, we’ll get the August jobs report number. The market often has a big move, one way or the other, following the release of the jobs report.
Today is also the day where the U.S. is scheduled to impose tariffs on another $200 billion worth of Chinese goods. And the Chinese are expected to retaliate. The market has that to deal with as well.
So, there’s the potential for a big move. And I wish I could tell you – with a high degree of certainty – which way we’re going. But, after looking at a whole bunch of charts last night, it seems to me the market has reached the point of maximum uncertainty.
Let me explain…
The stock market has been stair-stepping lower for the past five trading days.
You can see the action clearly on this 15-minute chart of the S&P 500…
This chart shows a series of lower highs and lower lows. It’s a perfect illustration of a downtrend.
If you look at the graphs of the RSI and MACD momentum indicators (above and below the S&P chart) you’ll see there’s no sign of “positive divergence” yet. In other words, the momentum indicators have been making lower lows right along with the S&P 500. That usually means the downtrend is intact, and likely to continue.
Granted… this is just a 15-minute chart, where patterns tend to play out within a day or two. It doesn’t help us with trying to figure out what might happen over the next week or the next month. For that, we need to look at the daily chart of the S&P…
On this daily chart, you can see a consistent pattern of higher highs and higher lows. That’s an uptrend. And there’s no sign of negative divergence on the daily momentum indicators. That means the uptrend is intact, and likely to continue.
So we have a conflict between the intraday and the daily charts.
I’ll tell you where I think we’re headed in just a moment. But, before we get to that… a word of caution…
In this sort of environment, where the short-term patterns conflict with the longer-term patterns, it’s best to be conservative. Don’t place aggressive trades in either direction. The market is likely to chew up bullish and bearish traders alike.
Cash is usually a solid investment option. Don’t worry about missing a big move. The risk/reward setup simply doesn’t justify large exposure in either direction.
Having said that… I think the odds slightly favor a sudden move lower intraday, followed by a recovery later in the session.
A quick move lower on the opening today would satisfy the bearish setup on the 15-minute chart. And that sort of a move would likely create positive divergence on the momentum indicators.
Then, if the market rebounds later in the session, it could help keep the S&P within the bullish pattern on the daily chart.
Will it happen this way? Who knows?
But, with the Volatility Index (VIX) on the verge of spiking higher, and with the financial sector (XLF) breaking down from a bearish rising wedge pattern yesterday, and with investor sentiment – a contrary indicator – getting overly bullish, I like the chances for my scenario playing out.
I do have some short exposure heading into today’s action. And I’m willing to close those short trades if we get a sudden move lower at some point today.
Best regards and good trading,
P.S. Quick bit of news before we get to today’s mailbag…
Next month, I’ll be presenting at the first annual Legacy Investment Summit in Bermuda. And the organizers have set aside a handful of tickets just for my readers.
So, if you’d like to come meet me in person, read on here for details.
Today in the mailbag, a powerful, mixed response to yesterday’s essay, “I Can’t Own This Stock Anymore”…
Thanks for all of your work. I feel the same way about Nike. There are lots of shoes out there that don’t require you to sacrifice your principles.
I don’t believe those who sacrificed their lives, or even their time to serve, did so to see black lives – harmless, unarmed, unthreatening black lives – slaughtered in the streets where they live.
More should be done than just talking about it. Turning your back is not the solution. That is what you are doing. I am out.
With you 100%, and thank you for speaking up. The CNBC talking heads yesterday were so nonchalant about giving Nike credit for targeting its teens-to-30s demographic. Our family is a past-and-present Navy family, and along with many other wrong-headed companies like this, Nike has made our do-not-buy list.
Jeff, his intent was not to disrespect the flag but to get attention to the injustice that runs rampant in this country. The media – you included – have successfully thwarted his effort and made a bad guy out of him when he had an altruistic intent.
I will decide what is unpatriotic in my view, and while we are on that note I will also decide what an insult to me is. By the way, I am a Vietnam vet.
Thank you, as always, for your thoughtful insights. We look forward to reading them every day. Keep them coming right here.