Recently some of my followers have been asking if the US stock market needs a trigger event, some news that causes a decline. At the last major US stock market top in October 2007 there was no news event that triggered the initial drop. Later in September and October 2008 there was plenty of news as to why stocks could continue to fall. By that time, the S&P 500 (SPX) had declined about 30%.
Today 04/19/21 a radio report as to why US stocks were falling stated “it was just profit taking – no need to worry”. Perhaps it is nothing, maybe it’s not.
Rather than look for stimulus events outside of the market, we need to look at what the market itself is telling us.
This is a recap of news from each of the US stock markets four dimensions.
Sentiment: Margin debt at all-time high.
Momentum: Monthly, weekly, and daily RSI bearish divergences.
Price: SPX Elliott wave count from March 2020 could have a completed five wave impulse pattern.
Time: Late April to October is seasonally bearish for US stocks.
The 15- minute SPX chart courtesy of Trading View provides additional evidence as to why at least in the short-term there could be more “profit taking”.
The rally that began 03/25/21 had a series of “ones” and “twos” which typically are the prelude to powerful market action in the direction of the primary trend. The upper part of the rally shows the corresponding series of “fours” and “fives”. The 15-minute RSI had a triple bearish divergence at the 04/16/21 peak.
Prior post error: In the 04/16/21 post I incorrectly stated a 50% short position was initiated at the SPX open on 04/12/21. The position initiated on 04/12/21 was 100%. The stop loss triggered on 04/16/21 was on half of the position resulting in a loss of .80%.
Traders are currently holding 50% short from the SPX opening on 04/12/21 with a stop loss on an SPX move above 4210. Continue to hold short.
If the SPX moves below 4114.82, initiate an addition 50% short position in non-leveraged SPX related funds. For this 50% position use a move above SPX 4191.31 as a stop loss.