S.T.A.Y.™ current position for Active portion of portfolio: CASH – S.T.A.Y. Plus™
Why the level of 4607 previous high of 7/27 was a “line in the sand” that was important.
The high of 4607 completed on 7/27 was a retracement of the previous large decline that started in January of 2022. Up until now, because the retracement did not exceed 100% of the previous decline, technical analysts would categorize this a bear market rally until proven otherwise. That assessment appeared to be accurate to date, as the market continued downward after this retracement another 10% decline from the 7/27 high of 4607 to a low Oct 27th of 4103, before beginning another rally to presumably retrace that decline. However, once the rally exceeds 100% of the previous decline and exceeds 4607 and successfully breaks out above that resistance line, than it reverts to a bullish pattern to possibly exit the bear market status. So this “line in the sand” was being watched very carefully.
Last Friday, Dec 8th intraday the market barely exceeded the “line in the sand” high of 7/27 by only 3 points and then hesitated and closed below it at 4604. This was noted as a “shot across the bow” warning and Monday we moved out of the inverse position and to a cash position at market open Monday. However, a successful breakout consists of the market materially penetrating the resistance level and then usually retesting to see if it now serves as support instead of resistance. That was the activity seen on Monday and Tuesday when on Monday the market opened below the 4607 level at 4593, however intra-day rose above the 4607 and closed at 4622, followed by Tuesday doing a retest of the 4607 resistance with an intra-day low of 4608 and then closing the day at 4643. Monday and Tuesday’s activity is what was the confirming activity needed to exit our one day cash position and on Wednesday at opening of the market actually moved to a bullish position going with the trend of the market. The market surged on Wednesday with about a 1 ½% gain, so our action paid off so far. So instead of an intermediate top in a bear market, the market now has taken on some bullish possibilities. Therefore, we are getting in line with what the market is doing. Keep in mind another “line in the sand”, which would be the previous all-market high of 4818 made on January 4, 2022. This is the “line in the sand” that the market must penetrate in order to leave the bear market in the rear view mirror. Although we are not out of the woods yet, we will keep you posted.
Also mentioned in previous weeks, we are in a “mountain road” market, therefore we took an inverse position on 8/11/2023. We stayed in that position until our shorter-term indicators showed otherwise. Now we have more or less made a round trip, except with this breakout, we have eliminated the inverse positions and gone with the market.
This new long (terminology for going with the upward trajectory of the market) position may be for a few days or a few weeks as we will be operating off of our shorter-term indicators to make changes as needed in a timelier fashion. We will keep you posted. If this new signal shows to be a continuing successful breakout, we will change the longer term signal from CASH to a BUY.
Weekly S&P 500 Chart with Fibonacci Retracement Percentages (from the all-time high)
Monthly S&P 500 Chart with Fibonacci Retracement Percentages (from the all-time high)