Back to our highs, again.
And what do we do when we hit the 20% line at 3,420 from below? NOTHING!!! What do we do when we cross under it from above shortly after that? We short it! That's right, the 5% Rule™ is not very complicated. In fact, this chart is saved in my StockCharts profile as "S&P 500 Large Cap Index ($SPX) Feb 6 2020" which means we've been using the SAME chart since before the crisis and we're STILL right where we expected to be over 6 months ago.
Remember, the 5% Rule™ is not TA – it's just math! Math is real, TA is not…
Math told us we'd bottom out at 2,280 and we went long at 2,280 and did very well and math told us we'll top out at 3,420 and we got much more bearish last week and now we'll see how that plays out. Hopefully, for the sake of the investors that are irrationally exuberant, we won't go down as sharply as we did in March. In fact, we can go down 20% and still be on a bullish track – as long as our "Must Hold" levels do continue to hold.
Unfortunately, the Must Hold levels are NOT holding on the NYSE and the Russell 2000 – our two broadest market indicators. That's because, as I noted in yesterday's Report, this is a very narrowly focused rally led by the Tech Titans. In the Dow 30, the Nasdaq 100 and the S&P 500, it only takes a few strong stocks to lift the entire index but in the Russell 2,000 and the NYSE (2,800) we get a much broader measure of the market and that measure is NOT GOOD.
The NYSE was at 14,183 in January and now it's under 13,000 so about 10% down for the year and the Russell topped out at 1,700 and is now 1,568 – also down about 10% for the year. When you think about it, that does seem about right considering the economic mess we're in but optimists that we are, we focus on the indexes that are perfoming well and ignore the ones that are performing poorly even though, historically, the NYSE is a much better…
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