I get it.
It's hard to get back over the 200-day moving average so we're not going to read too much into this early failure but it is worrying that we're heading into a 3-day weekend as tensions with China rise and the virus is raging in countries that have re-opened so that MIGHT be considered a set-back on 2 fronts that have moved the market up this year.
If we were to zoom out to a monthly chart of the S&P 500, we could throw out the spike down to 2,200 – as it quickly reversed – but that would leave us with a 3-month, 20% move down to our Must Hold Line that, so far, has only resulted in a weak (4%) bounce with repeated failures at the 5% line.
According to our 5% Rule™, which is NOT TA but just math, consolidating below the weak bounce line means we are more likely consolidating for a move down than up. That would be a move down below our Must Hold Level at 2,850 and back down to test the -10% line at 2,565. It's the same kind of bounce and weakovery that we had back in late 2018 – and we didn't need a virus then to plung 15% in 3 weeks in the second leg down.
All we've done in 2020 is double the scale but the computers are running the same algos they ran then. A one-month drop, a 2-month recovery and then they pull the rug out again (Thanksgiving weekend) and now we're heading into Memorial Day weekend all complacent again. I spent a lot of the Webinar yesterday warning about this so I won't re-hash it all – let's instead look at a good hedge to cover it.
In our Short-Term Portfolio, we added a TQQQ on Tuesday and it's up a bit but still playable. We also have our Jan SQQQ spread which, at net $42,000 (even cheaper now), pays $200,000 (376%) if SQQQ is over $20 in January – which is only 8 months away as this year rushes by. These are the sorts of plays that gave us our tremendous profits during the recent downturn, so of course we're going to use them…
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