The SP500, aka the SPY, has been on a tear since the low of $2,200 on March 23rd. To the disbelief of many, the market has been on a V shaped recovery so far.
As I am a primarily a trend trader and use the Ichimoku Cloud as my primary technical trend indicator I noticed today that the SPY had a bearish TK cross on June 23rd. This occurs when the fast moving tenkan crosses under the slower moving kijun on the Ichimoku cloud.
If you don’t know TA jargon, it’s OK. This early signal could be reversed with another move higher which would signal bullish continuation but if it continues downward we may have the beginning of the exhaustion of this record setting rally.
What’s important here is to notice when strong trends falter. Is this a hiccup for the bulls or the beginning of a bearish trend?
I have no position in SPY but if I were long I would sell 25% of my position on this cross as a defensive measure and move my stop loss for the rest to the bottom of the Cloud (~$3,000).
This Index signal coincides with many new all time highs for individual stocks. However, as I run through my stock screens I also see many double and triple tops and other less visible stocks showing more bearish indications.
This is not a call for end of the rally but it is something to notice and track.
It’s difficult to keep a level head when markets are gaining 13% per month. This pace is not normal or sustainable. Keep an eye on the trend.
Jesse Livermore, the legendary early 20th century stock trader, is the single greatest influence on my trading mindset. If you have not read “Reminiscences of a Stock Operator” and/or “The Boy Plunger” I recommend you buy and read them immediately. These books about Jesse Livermore’s life are entertaining and highly educational for everyone, trader or not.
One of the best tools for tracking a trend is the Ichimoku Cloud. An example of the Ichimoku Cloud applied to BTCUSD daily chart generates 7 trades (noted by markers at top of chart with 6 of 7 trades being profitable) over the past 18 months.
BTCUSD daily chart (click for big)
Different trading styles have different time preferences. Higher timeframe charts produce less trades per year. These higher timeframe trades are more profitable for less work. In these volatile times I believe you must be flexible enough to obey trends that are between 4H and 1D. Timeframes less than 4H are too noisy and over 1D can be too slow. Timeframes come down to personal preference and trading style. For me, having been a day trader looking at 15m charts, I can tell you I greatly prefer the higher timeframes for consistency of profits and quality of life.
“After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”
“The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”
Jesse Livermore
The key to trend trading is patience and persistence. I have lacked both the past couple of years.
Going forward I’ll be blogging more consistently on trends I’m trading.
Here’s a snapshot on a few notable assets:
Apple, a close above $374 opens target $430. However, $374 area could be firm resistance. Stop $345.
“Experience has proved to me that real money made in speculating has been in commitments in a stock or commodity showing a profit right from the start.”
Jesse Livermore
BTCUSD, in cloud and trending down. Neutral trend with bearish bias. Confirmed sell signal $8600. Triple top formed at $10,500.
BSVUSD, below cloud and trending down. Bearish trend with support near $150. Reverse trend at $170. Stay out till trend reverses.
“I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.”
Jesse Livermore
TSLA, all time high with price 20% above Ichimoku Kijun indicator. This displacement between price and Kijun is a classic retrace signal. However, markets are irrational. I would be selling TSLA here to rebuy at Kijun support of ~$1,000. TSLA is a gamble for longs and shorts. It’s one of the most volatile and irrational assets to trade bar none in 2020 (including crypto).
AMZN broke a triple top and is now up 43% in 90 days since the Ichimoku cloud long signal at $2,008. Price looks determined to test $3,000 and I think it’s an ideal time to offload into that strength any shares you don’t plan to hold for 3+ years.
“End trades when it is clear that the trend your are profiting from is over.”
Jesse Livermore
To say these are unusual times in the markets is an understatement. Rarely has humanity had macroeconomic, political, health and cultural movements of this magnitude coinciding at the same time. Anything is possible in this environment.
Would you like to see more of these charts? What assets would you like to see tracked?
Using AMZN as a proxy fo the market. After 10+ years of QE, 2,800% return and four tries at new ATH over 12 months, there is no one left that is willing to buy the top.
The great QE experiment nears it’s end. Stock your bunkers and hug your transgender children America, we are in for a rough landing as we fall from the top.
Zerohedge’rs are in the streets lighting live bulls on fire.
Trump is on Fox and Friends bashing Fed Chairs while tweeting from a gold toilet bowl.
Idiocracy was not a comedy. It’s a documentary made by time travelers.
It’s ok. A suitcase of Bud is still $18 and the fish are biting.
Cost of living in California is spiraling upwards at a dizzying pace. I left in November of 2018 because even though I make Bitcoin sized returns California still seems insanely unaffordable. Sure, San Diego has perfect weather but housing and rents have doubled within a few years. This is not sustainable. I see a huge correction coming to “America’s Finest City”.
For rentals, how about $3,075/month for less than 600SF sound? Sounds ridiculous to me. This is near the median for 1 bedrooms in the Little Italy neighborhood. Don’t worry, if you have your heart set on paying $8,000 for a 1 bedroom Little Italy has you covered.
This neighborhood is mostly young professionals. “Excuse me sir, but what are you doing at 28 to afford a $5,000 apartment?” Sure, many people make lots of money but is everyone making the required $200k plus to be rolling in a neighborhood with those rents paying $14 for avocado toast snacks and $12 cocktails on the daily? I doubt it. I smell daddy’s money or insane credit card debt.
The only way the math works out is that everyone is going broke, fast. But their Instagram is lit AF.
To be clear, I *could* afford to live in California but at $3k for <600SF why would I? Add in that a burger, beer and fries is over $20 and it was time to move. I was eating my retirement one $20 burger at at time. Maybe it’s because I still have my midwestern roots and no matter how much I make I refuse to blow obscene amounts of money on a studio with a peak ocean view. Or, maybe I can just do basic math.
But wait, there’s more. As a trader, California is creeping up on the Fed for their share of your tax dollars. You think short term capital gains from the Fed are bad? Wait till you have a great year and with Fed and CA capital gains you are paying over 50% of profit in taxes. That’s right, you keep less than 50% of your profit. But hey, you get to take 100% of the risk so it evens out? That’s an example of the new California math.
I realize NY or SF may have more ridiculous rents. Great, if you live there I’m surprised you are smart enough to read.
I sold my home shortly after the last bubble. I may be a buyer during the next crash. It’s going to be a doozy.
