02-06-2019: March S&P 500 Index: Concerns Over Plunge Fade

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors

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4 With the best minds in the Universe working on, but unable, to predict the stock market, the "buy and hold" crowd counsels waiting for those "best days" that come a few times during the year. All know a recession and a correction of major proportions is coming, the but the question is "when" and not "if." The "when" is usually when the last bull is in, but the "fear factor" is still evident from years earlier to the extent that the last bull may not be in. No one can predict the overall market consistently, but we do know that it generally goes down three times faster than it goes up, and fortunes can be wiped out on a correction. So, they counsel, just hold on through the correction and over the decades you will always be all right by buying the indices. If our thesis about going down three times faster than up is right, then you have a three times better chance of winning on a long play, assuming your timing is optimum.

There seems little doubt after a recent correction of minor proportions, the technical factors are pretty much all pointing to further "up." The valuations are historically way above what they should be, meaning that many stocks are riding on air. All we can do is "go with our system" which weights the technicals highly in favor of further gains, barring some huge international incident. We will say that a "forgiving" market such as this one has sufficient volatility in both directions to favor traders who maintain an equal number of long and short positions.

Intermarket Analysis

We fed the S&P 500 Index, NASDAQ 100 Index, and U.S. Dollar Index into a neural network to get the following result:

Parabolic Chart

March S&P 500 Index:

Parabolic Chart

Nirvana Chart

March S&P 500 Index:

Initial Chart

News Analysis

"Mininally positive" corporate earnings reports are buoying the stock market upward. The trade seems to think that forward guidance is more important than earnings. Speculators were net long as of December 24th, flying blind after that. NASDAQ charts appear to be more vulnerable than S&P 500 ones. Charts are described as being in an "upward channel." Stocks are considered well into overbought territory.

Alphabet, parent of Google, posted a 20% jump in ad sales in the last three months of 2018. Big tech stocks like Nvidia, Microsoft, and Apple are roaring higher. Clorox jumped nearly 6% after reporting better-than-expected earnings. Energy stocks recovered from earlier losses moving in tandem with oil prices.

Many investors still fear a market plunge, and often this reservation portends a continuation of a bull market, until the last bull is in.

As China's central bank provides stimulus to its economy, U.S. investors see it as a key to bull-market longevity.

Car sales are expected to drop as car dealers are flush with unsold cars. Supoer Bowl ads declined along with its TV audience.

Profits for S&P 500 companies are expected to decline nearly 1% during the first quarter compared to last year according to FactSet Research. If that happens, it would be the first drop since the second quarter of 2016. Profits rose more than 20% in the first half of 2018 when lower corporate taxes juiced growth. The Federal Reserve's insistence that it will be "patient" has helped fuel sotck price growth. That could change if investors focus on what's to come rather than what has already happened.

The S&P 500 had its best January since 1987. The main power behind the rise is tech stocks. The U.S. Dollar is holding firm on a rise in U.S. yields. Treasury yields rose fairly sharply over the past two sessions as of this writing.

Any improvement of negotiating tariff reductions will power the markets higher.

A January jobs report showed the 100th straight month of increased employment.

Employees in the marijuana industry make an average of 11% higher wages than other industries according to one study.

Baker Hughes reported a sharp drop in the number of active oil and gas rigs in the U.S., falling by 15 rigs to reach 847. The full rig count is up by 99 from this time last year, and 82 of those are oil rigs.

There has been a slight uptick in wages which could support consumer spending. Some are saying the most significant impact on the current market is interest rates. If Fed Chairman Powell says repeatedly that the F ed annot fully assess the situation at this time, will the markets interpret that as a policy shift?

Some successful investors realize the impossibility for mere mortals to predict the stock market and succeed through "benign neglect."

Concern over a recent stock market "plunge" was based upon fears of trade wars. Any comments by Trump Administration officials suggesting things will be "worked out" with nations like China and the difficulties between Britain and the EU will buoy and have buoyed the market back up. A recent 15% drop from a recent peak is no longer considered being in a "bear market" given recnet resurgence. But the S&P has more than doubled in value since December 21, 2011.

Utilities have been unusually strong in recent markets.

17% of a typical white U.S. resident's wealth is in the stock market, but it is as low as 5% for black and Hispanic Americans.

The Baltic Dry Index, a measure of shipping capacity along major sea routes, has fallen 17% recently, and is considered a leading indicator of stock market performance. Retailers are expecting to sell fewer goods in the coming year.

Point & Figure Chart

300.0|                                                                  T  2/ 1
     | CME - Mar-19 S & P 500 E-Mini (50 X Idx)    Cm.=0.01  Lim.= 0.2
     |                X
     |                XO
     |X               XO
     |XO              XO
     |XO              XO
     |XO  X XO      X XOXOXOX
     |XOX XOXO      XO O OXOXO
     |XOXOXO O    XOX    OXOXO  X
     |XOXOX    O               OX
     |XO O                     OX
     |X                        OX
     |                         OX
     |                         OX
     |                         OX
     |                         OX
     |                         OX
     |                         OX
     |                         OX
     |                          X
     |                         O
      1                1111111111
The above chart is giving a conventional buy signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical low and a weak seasonal up period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is "Thrust". It is giving a buy signal.

Internal Printout 1

Results of "Thrust" for S&P 500 Index (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system is wokriing on a long-term buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $50 for the mini contract. Initial margin on a single contract is $6,600. Use of options is advised.

Historic Range

Scale trade sellers are entering the market for the long term in this price range.

Historical Chart

Commitment of Traders

Commitment 1

We still haven't recovered from the Trump Shutdown, and no subsequent CTFC Reports are available even yet.

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Commercials with the best track record were getting increasingly-short, but this data is now very stale, and the market has surged upward since the CFTC data stopped being reported.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a downtrend remains intact from the last volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) S&P 500 Index E-Mini March 2705 Put and Sell (1) S&P 500 Index E-Mini March 2725 Put @ 7.00 to the sell side or greater.

o 1 o 2 o 5

o 3

o 4

Calendar Spread

What the Mar. - Dec. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at +8.00 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -10.00 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be midway headed toward the buy the far, sell the near point.

Level Table:

Level Table

The path of least resistance is up.
300.0|                                                                  R  2/ 1
 CME - Mar-19 S & P 500 E-Mini (50 X Idx)    Cm.=0.01  Lim.= 0.2
220.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.569
                                         1 1 1 1 1 1                  
       2 2 3 3 4 4 5 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 1 1 1           2
       0 1 0 1 0 1 0 1 3 1 2 1 2 0 2 0 2 0 1 0 1 0 1 0 1 3           0
       5 6 5 9 3 7 1 5 0 3 7 2 6 9 3 7 1 5 9 2 6 3 8 3 7 1           1

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 2/04 ).

Intraday Chart

                 Risk Versus Opportunity Report

                ESH9    March S&P 500 Index E-Mini

                      High Price:  2833
                   Current Price:  2704
                       Low Price:  2641

                            Risk:  0.046
                     Opportunity:  0.094

                    (O/R) Ratio =  2.048

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart + 1
Nirvana Chart - 1
News + 1
Point & Figure + 1
Cyclicals - 1
Seasonals + 1
Internal System 1 + 1
Internal System 2 0
Third System + 1
Historic Range - 1
Commitment of Traders - 1
Range/Volatility - 1
Level Table + 1
Other Factors + 1
Total + 4
Place 2 March S&P 500 Index E-Mini Contracts on a Buy Watch with stoploss @ -5.57 below the get-in point when recent price is represented as "270.42".