Investing Advice: Will July Slide Lead to a Rollover?

Posted On July 6, 2018 12:18 pm

We’ve already discussed the invalidity of investing advice like “sell in May if you go away,” and showed that most of these pithy aphorisms simply don’t hold water over time or under scrutiny.

The fact is markets tend to maintain the trend established through the first half of the year.  In 2018, that has meant volatility.

Volatility, that is wide up and down swings, often suggests a change in trend, especially if that trend has been in place for more than a decade and held up by manipulative monetary policy. (Ahem)

Bull tops such as 2000 and 1929 are as close as the market has ever come to perfection.

And that is the problem. The irony of that victory of sentiment, of conviction over skepticism — in its near perfection — is that the performance couldn’t be sustained beyond the moment.

At extreme highs and buying climaxes in stocks and in the market as a whole, great traders recognize extreme taken to a new extreme and realizing the temporality of this react with raw emotion.

Such is the terrifying terrain swelled with volatility this year versus the extreme calm in 2017.

Just Monday, it was hard to miss the cowbells and crowing on Twitter of how clean Monday’s low was… how easy it was to pick off — how anybody who’d missed it must be an idiot.

Monday’s upside reversal was short-lived.

What do these folks do if the SPX snaps 2700 here and follows through below 2670 and the 200 day m.a and a rising trendline defining 2018? Do they assume it’s another ‘opportunity’?

How many failed rallies off 2700 does it take to create caution amongst the bulls?

How many tests of 2700 must occur before the bears throw in the towel?

If the SPX losses its 200 day m.a. again, and with authority, the complacency created by the years as has been the case for the last 9 years, might finally cause the bulls to spit the dip buying dip.

It’s a terrifying prospect to contemplate — for a great bull to feel the weight of the precise moment of his fall from grace.

Both struggle against their fall from greatness. Superstar athletes stay on the circuit past their prime grasping for their prior glory days. So too this second longest bull market in history despite two attempts for the  SPX to reach its late January top is now struggling 5 months after that top to stay above the 2702 mid-point of the year and flat on the year which is 2673.

The NAZ which left a Key Reversal Day from its all time high on March 13 leaving an Island Top in its wake, cleared that high in June but knifed below the prior March high leaving another Island Top last month.

Both indices are finding resistance on rallies BELOW their respective 20 day m.a.’s. Both are probing their 50 day moving averages. In fact, the SPX closed below its 50 day m.a for the 2nd time in 5 sessions on Tuesday.

The last time that happened was March, when the index was rejected from the same 2790 level as occurred in June.

A 175 point decline in the SPX followed over the next 7 days.

 Related: The Fed is Struggling With Its Balance Sheet. Here’s What You Need to Know. 

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Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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