Conventional wisdom has it that the market has three time components: The first hour of the trading day, the middle of the day, the final hour of the trading day. The final hour (3:00 p.m. to 4:00 p.m. EST) tends to be dominated by professional money mangers and institutions. If they are buying, then it is a good rule of thumb that you should be buying (or at least be in the market already).
The time is 3:15 p.m.
The day was Bullish. The low (1171.32) was set early in the day. If the close is higher than the open (1171.32), then we know that smart money (institutions, pension funds, hedge funds, etc.) was buying. If the close is at support (1173), then that behavior just confirms that the trend is up. Even if the market closed @ 1155.20 (the 13-day moving average or green line @ stockcharts.com), that would just be a second red flag. I would still stay in the C Fund and continue to ride the trend up.
The market is clearly overbought. The RSI reading on the daily chart sits @ 70.69. The blue bars (MACD Histogram) continue to flat line. The Full Stochastics have been embedded in an overbought condition for a week. This means that the market is going straight up like a rocket launch. It is a good time to be 100% in the C Fund.
What Am I Watching?
Right now, I am watching the green line or 13-day moving average. It is up sloping so there are more gains to come. I am waiting for the line to be tagged a second time. That will be the second red flag. I am also waiting for the market to do its thing and hit 1196 and possibly 1205. It's all about the exit from the C Fund and transition to the G Fund.
If the Market does fall, how far might it fall?
Ira Epstein has written that, when markets fall out of an embedded overbought condition, they tend to fall down to the 50-day moving average. I saw that happen last year with the price of gold. And the fall is pretty dramatic when it occurs.
The 50-day moving average is at 1113.62, so that is a likely target for a market fall.
Cycle Low
A cycle low is projected for October 27. It is possible that the market could hit 1205 and then fall to the 50-day moving average by October 27. That would make sense time-wise but we have to let the market tell us what it wants to do.
The market is now @ 1181.81. We entered the market at the 1045-1065 level. So, it's all good for now. Our returns for the year are in the 16% range.
Have a Good Day!
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