Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
If the pattern of the past 3-4 months continues, after these type of washouts where chart after chart goes from “constructive” to “smashed” and the index swoons, we’ll have a big gap up sometime in the next week and a huge 1.5-2.0% day. Of course it will come out of nowhere and if you are not in the market overnight to take advantage of it you sit on the side of the road watching it pass by at 90 mph. By the time it happens, the majority of individual equity charts are damaged seriously.
This has been the only consistent way to make money in the market in the past few months. No time to build positions incrementally or exit them – it’s all in or out, and the rallies happen after a ton of technical damage has been done in individual charts. Not a world for any sort of trend following at all.
EDIT – after that end of day bounce the S&P 500 closed almost exactly on its 50% retracement of the move off the June 26th lows – July 3rd highs. Not sure if those are any true buyers anticipating what I wrote above i.e. “gap up opens” happen immediately after bad days, or some short covering. Either way it appears this is the 3rd failed bounce attempt of the summer.
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