The SPX daily chart below highlights three approaches to market timing on one simple bar chart. The blue and red arrows are an algebraic based trend following system, while the numbers represent bigger picture pattern recognition, i.e., Elliott Wave analysis. For the third of these three stand alone systems, I've drawn simple trend lines that provide trade triggers, confirmation of the swings suggested by the arrows and wave structure. It's easier to understand by looking at the chart as a whole, rather than describing it with words.
SPX Daily
What does this have to do with the crash window?
Take all Sell Signals during crash windows. Three Sells appeared on this chart last week. We saw on Monday, August 5th, as the market was hard down at the open that major online brokers were, for lack of a better word, offline for hours. How were our subscribers positioned? See August 4th Sunday Update.
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What is the Take-Away For The Week Ahead?
On Thursday a fresh red down arrow appeared at the close of trading. This came on the heels of a break of the most recent up-trending trend line. On top of all that, the EW count shows a completed Wave 5 of 5, suggesting a top of significance has been made and its hard down for the foreseeable future. Let's throw in the mix a Sep-Oct crash window, occurring in an election year (one and only debate Tuesday night) with multiple global hot spots on the verge of erupting. Anything else? The FOMC is about to lower interest rates, which is bullish, right? Wrong. The beginning of a new trend in rates from up to down is usually associated with economic headwinds, a recession at minimum, depression worst case. In either case and all points in-between, its bad news for stocks. If they lower rates on Sep 18th, expect chaos, volatility and circuit breakers. Did I mention the crash window?
Bottom Line: Buy index puts or inverse/leveraged calls.
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