What Does History Tell Us About Weak Profiles Near The 200-day?

A: Yes, anything is possible in the markets and we are prepared for all outcomes from wildly bullish to wildly bearish. The TS score speaks to risk-vs.-reward. A recent similar breadth thrusts piece covered a V-bottom that occurred in 1971. In the 1971 case, the S&P blew through the 200-day and never looked back. The TS score after clearing the 200-day was 38, which is still considerably higher than the score of 7 we are seeing today. The moral of the 1971 story is we should be open to and prepared for bullish outcomes near the 200-day in 2019.

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Q: Will the 2019 rally fail soon?

A: Under our approach, it is best to take it day by day with an open mind and see how the data evolves over time. Even in a giveback or retest scenario, the 2011 and 2015 cases remind us the market could trade near the 200-day for several weeks before anything is resolved.

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Q: What is the key point relative to our approach to the markets?

A: The key takeaway for us is making prudent risk-reward decisions with our hard-earned capital. The S&P 500’s 200-day moving average is sitting at 2743. Anecdotally, an S&P 500 push 2.41% above the 200-day, similar to 2015, would land at 2809. From that point in 2015, the S&P 500 dropped 13.30%. Even a 50% retracement of the V-move off the December 2018 low would mean a giveback of 6.2%; a move back to the 61.8% level would mean an S&P 500 drop of 7.90%. A full retest of the December 2018 low could mean a drop somewhere in the neighborhood of 13%.

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With a TS score below 10 and a still yet-to-be-determined outcome near the S&P 500’s 200-day, we will continue to take a prudent, patient, and measured approach. We will continue to scale in at a rate in line with the rate of improvement in the hard data. If the data begins to improve at a faster rate, we will begin to take larger incremental steps.

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Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit ...

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