What a difference 2 weeks make!
Sometimes it is easy to think that the market has really got it in for you. In the last blog post I gave a heads up that the Golden Cross had happened on the 29th March, confirmed on the 30th and so we could enter on the 31st. And guess what: 29th March was the highest point it reached, and it has been going south ever since. Since the peak it has dropped 3% which is not very nice.
Has it happened before?
I have been going back over the charts right back to 1993 to see the last time when a golden cross was reversed shortly afterwards. The first thing I noticed was that it doesn’t happen very often, in fact on only 4 occasions. I thought it may be useful to review the most recent time that it happened in 2006.
The death cross on the 13 June would have got us out of the market, then the golden cross on the 10 July would have got us back in again, only to get another death cross 4 days later! At this point one’s nerves would be completely frayed, and one would be forgiven for walking away, planning to come back when things had settled down.
Which it did; after another 2 weeks there was another golden cross, and things settled down for a while. The market climbed very nicely until the GFC started at the end of 2007 and a world of pain opened up for most investors.
But what about now?
I wish I knew, but no-one does! The OUT signal is confirmed, and we should get out on Monday. If I was doing backtesting then I would have no doubt: if you are following the rules then it is time to get out.
However, I have some hesitation. The 200 SMA is still going up, albeit slightly, the high on the 29th March was higher than the two previous ones on 2nd and 9th February. The weekly chart still looks OK. Thursday was the day before a long weekend when traders often dump their positions rather than hold them through a holiday.
So – I will be watching the futures on Monday, but unless they are up hugely then I will be getting out. If you want to watch too, Investing.com is a free website where you can monitor what happens before the market opens.
The VIX 'Fear Index'.
I thought it would be useful to look at the VIX and see where we are right now. Here is the VIX for the last 30 years:
You can see that while we are slightly above the average the VIX is not particularly elevated. Lets look at the last year and see what we can see:
Again, it does not seem to be out of the ordinary, so there are no real clues here. The fear seems to have dissipated but the market has not yet resumed its climb.
Why is it happening?
I try to keep off commenting on geopolitical matters as it can get people offside, but as I see it there are 2 issues driving markets: Inflation and the Ukraine war.
> Inflation – the reading of 8.5% in March was not unexpected but is the highest for many years and there is debate about whether it is transitory or here to stay. There is no doubt that the massive stimulus programs financed by ‘money printing’ has contributed, but that may be coming to an end with the current Congress and, if the polls are to be believed, the revamped one in November. There is a saying buy on rumor, sell on fact which may mean that the market will go up in anticipation – but who knows? All we can do is watch the charts.
> The Ukraine war has now been going for more than 8 weeks and is getting to be the ‘new normal’. The problem of course is that Europe relies on Russian oil, and so is effectively financing Russia’s war effort. According to the WSJ, the US imported 8% of its oil from Russia last year, which means that it is less affected however, a year ago it would have been unthinkable that it would be searching for oil supplies from Venezuela, Iran and Saudi Arabia.
How are these going to play out? Who knows! I wish I did. Just remember that the market reflects peoples’ emotions. While situations are always different, the emotions are the same. The Mark Twain quote is particularly relevant:
History doesn’t repeat itself but it often rhymes
These are the times when trading is not much fun!
Here’s hoping that the next 2 weeks are better.
