Regarding the markets, I’m unwilling to stick around and wait for things to fall off a cliff. I’m not Sylvestor Stallone.
I don’t have the finger strength or the mental acuity to do something like this.
This image gives me goosebumps just looking at it, even if it isn’t real.
The thought of the markets soon testing 3,900 is also giving me vertigo.
It appears we’re not on a collision course with this resistance level.
I want to explain what happens next.
JPMorgan Warns a Cliffhanger is Coming
Today, we saw another wall of selling at the opening bell.
Hedge funds are using any short-term strength to unload positions and reduce equity exposure. Meanwhile, the statistical arbitrage (aka “Buy the Dip”) crowd is using short-term selloffs to squeeze intraday gains.
The result is a turbulent market.
That crowd will eventually tire out at key support levels. With momentum red (it’s been since last Tuesday when the SPY was above 400), I think we’ll see a test of 3,900 soon.
At that point… the buyers might go away. And the selloff will get “real.”
Since our negative signal hit around 11am ET on February 21, the trend lower has been fueled by major intraday swings.
But the trend remains lower. And the selloff has been steeper in its move than the previous declines that stretched from February 2 to February 17.
Things could start to accelerate downward quickly without support.
JPMorgan’s trading desk has warned that things could start to push lower in a global “risk off” event at that 3,900 level. Wrote index trader Jason Hunter:
“Other markets that have been sensitive to the China rebound story are testing key chart levels as well. A break there has the potential to feedback into western markets as global macro sentiment may sour.
“Even after the recent setback, the S&P 500 Index still looks overvalued relative to the shape of the money market curve. We have used versions of regression models based on that relationship to not only show the limited upside for the index (4100-4200 resistance), but also show asymmetric downside risk that is still present on the residual chart.”
Hunter notes that the fair value for the index is slightly under 3,800.
And that’s exactly where I expect we could head before a short-term bounce. Hunter also notes that a retest of the 3,500 lows would be a two-standard deviation move.
While that’s not out of the cards, it speaks to where things could move due to ongoing frustration.
The last time we had the 10-year bond pressing 4.1% was when we hit the bottom in October. Toss in concerns about geopolitical tensions and red-hot jobs data, and we could quickly move lower.
I know that isn’t what people want to hear in the short term. But it’s vital that readers understand that we’ve been deadly accurate around our momentum reading back to the start of the November 2021 selloff.
In fact, we’ve called the top every time, and called the bottom as well.
It’s all a matter of institutional flow and how to properly measure it.
I don’t know how far the market will move lower. I just know when to get out of the way. And when I get a negative momentum reading, I quickly take action and start to prepare for what comes next.
What’s Next?
Over at Tactical Wealth Investor, I offer a free research report around the “Six Ways to Trade Negative Momentum.”
That report alone is worth the subscription price. I have hedge funds and private equity readers who abide by it, and I’m effectively giving it away to my readers here.
Now is the time to not only take advantage of the market weakness with the inverse ETFs that I’ve recommended here, but it’s also time to prepare for a major dip. When the market sells off and momentum goes red, it’s a very good time to move to cash.
If you’re a S&P 500 ETF (SPY) holder, would you rather have sold at $402 when the indicator went negative, or be holding it now with the threat of a breakdown under $390 looming?
Then, when momentum does turn positive again – and it always does – you’ll know how to take advantage. Especially with the best stocks in the market.
Right now, I’m putting together a NEW report for Tactical Wealth Investor readers: “Six Ways to Trade Positive Momentum.” It will focus on the very same stocks that are part of our inflation-busting portfolio…
But it will also teach you the basics of high-probability options trades, the best stocks to target when capital flows back into the market, and the proper portfolio allocations for this amazing strategy.
The report will come out in a few weeks…
You’ll only get that report and access to our library of other content if you’re a member of Tactical Wealth Investor by this weekend.
Join me right here at a special discount price.
To your wealth,
Garrett Baldwin
Market Momentum is Red
Momentum remains red right now, and we’re currently hedged with the Proshares S&P 500 Short ETF (SPY) for the Tactical Wealth Investor. If we break under 3,900 in the days ahead, a move to 3,800 is very likely. I don’t know how much further it could go in 2023, but I remain bearish into the Fed meeting in two weeks.
