After what many considered an inevitable fall, it seems no one knows what to expect next.  How is it that everyone feel so qualified to call tops, but without any conviction regarding how far and how long the market will go down?  I guess it’s easier to call tops than bottoms.  More likely, it’s just scarier to call bottoms.

Last week’s moves were epic for the machines (you can almost smell the algos burning through trades). The big trading desks made stupid cash off of the volatility.  For us home gamers, it was a reminder that this business isn’t always easy and 2017 was just an outlier of joy.  Seriously, you could have tossed darts and picked fabulous stocks last year.  This year.. well, we may have to actually TRY to make money.

So where are we now?  Easy, we’re back to normal ranges of support and a market reset is underway.  It’s possible the market will continue to go down, but technically, I’m much happier where we are now than how we exited January.

Take the SPY as an example:

SPY Daily

The spread between the moving averages is way too wide to remain sustainable.  Especially the close in ones (EMA9 and 23). I would love for those to consolidate together with the sma50 and flatten out next week.  It’s also nice to see MACD approaching oversold levels.  What most traders are calling out is the hammer on the daily.  Almost every S&P 500 equity chart printed a hammer, meaning traders came in and bought the lows which allowed the equity to finish significantly higher.  Of course, if SPY slips below sma200 next week, it’s very likely that the market will leg down big.

The big picture

The equities market doesn’t like higher than expected wage growth with low unemployment.  This could drive up inflation (the cost of buying goods).  The concern is that higher wages and low unemployment could increases spending (put more money into circulation).  This higher level of spending for a finite number of goods means higher costs and your dollar becomes less valuable. At some point, it’s too much to handle and consumers have to cut spending – nothing hurts equities markets worse.

To block inflation, the FED could raise interest rates. This reduces borrowing and slows down spending. However, if that goes too high, too fast, then there are not enough borrowers (think home loans) and the market gets hurt.  Ultimately, it’s a battle and the market is currently more concerned about inflation than it was 2 weeks ago. Add in increasing bond rates, the end of QE, and messy ETF instruments and we end up with the perfect soup of concern.

I don’t know where this market is headed, but I did buy the end of day hammer/reversal.  We’ll see if the buyers stay in on Monday instead of selling the open.  Really hard to say.  My assumption is that we’re not done to the down side, but there are likely some short term long trades that could put some money in our pockets.

Positions

I’ll sell the hell out of these if market weakens Monday with volume.

• VMW added Friday on sma200
• SQ on sma100 tap
• DUK
• JPM
• HD on sma100 tap
• AMZN
• AAPL
• TTWO
• MSFT

Watching TXN, AMAT