It is Friday. We are seeing selling in the market.
The selling is noteworthy for five reasons. First, we are seeing selling on a Friday. This selling could set up an inflection point in the market if the selling continues on Monday. Second, the market's reaction to the "good" jobs report is bearish. This tells you that the character of the market has changed. The market's reaction is your key to the future trend, not whether the news is objectively good or bad. Third, we have a crossover on the MACD lines on a daily chart. What do I mean? Some investors and traders will tie their decisions to whether the black or the red line is on top. If the black MACD line is above the red MACD line, then many market participants will take that as a sign to buy. They will believe that the trend is up. When the red MACD line above the black MACD line, then they will take that as a sign to sell. They will believe that the trend is down. Its the perception of market participants in the market that will move the markets. Right now as I type, the black line is 14.765. The red line is 14.975. The red line is above the black line. An unknown number of market participants are now selling the market. They will perceive that the trend has changed to the downside. Fourth, the MACD histogram on a daily chart has turned negative. When the histogram is positive, the market momentum is up. When the histogram turns down, the market momentum is down. Right now, the MACD histogram reading is -0.192. That is a negative reading. That means that the market momentum has now turned down. The flow of the market is now down, not up. Finally, the Relative Strength Index (RSI) reading on the daily chart has dropped out of overbought down to 66.61. When an overbought RSI reading drops down from above the 70 overbought line and goes below 70, it can be confirmation of a change in trend.
The trend is your friend. If I were long, I would sell. If I were aggressive, I would short the market for the next two weeks. [Full disclosure: I am short the Shanghai Index since Tuesday.] If I were still in the C Fund, I would sell out. I am in the G Fund, so I'm content to watch the correction play itself out. Remember that our Club's goal is to beat the S&P 500 Index this year. The best way to do that is to wait for the market to drop below 1257 before re-entering the C Fund. We want to enter the market when prices are low in a correction.
I feel strongly that we saw the S&P 500 Index top out this week. Stay tuned.
Wink
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