Thursday, November 9, 2017

As of Thursday, November 9, 2017 at the close of trading EquitySurge™ has continued a strong sell signal for USA equities.

We haven’t posted for about two months now because the market has just melted up higher on the hopes for tax cuts over that time. The rise since early September in the S&P500 Index has been about one hundred points, but it’s occurred on negatively diverging technicals (again) and low volume and volatility.

Well we were inspired to write today because of a couple of very important developments. As you all know we have been bearish for the entirety of 2017 with worries about the seemingly endless grind up in stocks during the year with no volatility. Clearly we missed some nice gains, but those gains don’t count unless you realize them.

So coming into the one year anniversary of last year’s Election Night Plunge in the S&P500 Index Futures (they were limit down 5% during the night), we want to again stress the importance of selling high.

Today in Tokyo, Japan the Nikkei 225 Index experienced a massive pop higher (up more than 400 points), followed by an even bigger plunge lower. The day’s range from high to low was 1,110 points – huge! For market technicians, this was a perfect “outside day” reversal signal. This is when a new high is set in an uptrend, a buying climax, and the buying exhausts and weak speculative longs are quickly shaken out of positions forcing prices to lower lows than the prior day (closing near the lows). The wider the range, and the more significant the volume, the higher the likelihood that a trend reversal is underway. Volume in the Nikkei last night was enormous.

This is ominous because with prior outside day reversals in the Nikkei they were accompanied by obvious macro events such as Brexit announcement, etc., but last night there was no obvious macro catalyst, so it begs the question of what is going on to cause that spike up and massive reversal.
The sell off continued in Europe and here in the USA, although the buy-the-dip crowd did their duty and brought the S&P500 Index back up about twenty points off the intraday lows.
However, high yield bonds have now spiked down far below their 200 day moving average, a key measure of support, so that would indicate that liquidity is drying up fast. And no matter what, liquidity is what drives stocks higher, or lack thereof, lower.
Here are a couple of charts to consider.
First off the Nikkei 225 Index showing the outside day key reversal candle today:
Nikkei Outside Reversal Candle 11092017
And second, a chart of several important bellwether securities here in the USA: the S&P500 Index at the top followed by High Yield Bonds, DOW Transports, and Small Caps. You can clearly see what High Yield Bonds, the DOW Transports and Small Caps have been foretelling over the past couple weeks. However the S&P500 Index has just melted up the opposite way during that time. Are the other three telegraphing weakness coming in stocks? Yes, we think so and potentially in a big way:
Major Keys 11092017

If you have enjoyed gains by having long positions in stocks this year, we urge you to consider taking a hard look at whether or not you should keep those positions and potentially endure a crushing drawdown, or rather sell high to lock in those gains and generate cash.

If you would like to review the EquitySurge™ trading signals generated in 2016 and so far in 2017 please see the Trading Signal Performance Chart page.

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