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Trading Lessons

Stock Market Retracements Calculated

Stock-Markets / Stock Markets 2018 Feb 08, 2018 - 06:29 AM GMT

By: Anthony_Cherniawski

Stock-Markets

SPX made a 48.5% retracement at 2727.67 this morning. The extension stayed within the confines of the Broadening Wedge that I had pointed out yesterday. This morning appears to be a “run the stops” exercise since the SPX volume was tepid and the only way to get liquidity was to force the sale of those who had entered short yesterday. I do not use stop losses for that reason.

Unfortunately, investors are being told that this correction is healthy and a buying opportunity. Goldman Sachs appears to be “talking its book.”


NDX retraced its decline by 53%, right up to its mid-Cycle resistance. This is normal in the Cycles Model. In fact a Fibonacci 61.8% retracement is often the norm for the NDX.

Here is an Elliott Wave interpretation of the VIX action thus far. Since Wave 5 may be equal to or greater than Wave 3, the minimum distance to the top of Wave 5 may be near 60.00. At 1.5 X Wave 3 the top may be near 78.00. These are only estimates. I have never seen this before, but it makes sense that these waves may expand since the VIX is in a 20-year Broadening formation.

Bloomberg comments, “It was the hot trade on Wall Street, a seemingly sure thing that lulled everyone from hedge fund managers to small-time investors.

Now newfangled investments linked to volatility in the stock market -- until a few years ago, obscure niche products -- have exploded in spectacular fashion. The shock waves have only just begun.

How these investments proliferated is a classic story of Wall Street salesmanship and old-fashioned greed. In a few short years, financial engineering transformed expectations about the ups and downs of the stock market into an asset class that could be marketed and sold -- as tradable as stocks but, it turns out, sometimes far riskier.”

The NYSE Hi-Lo Index is cautioning us at this point, but again, to be expected. The trendline is maximum resistance to a rally, which may be complete already. Heavy selling should bring the Hi-0Lo back beneath the Cycle Bottom at -123.70 in the next 24 hours.

TNX appears to be winding up for the final probe toward its Head & Shoulders target. The Cycle Model suggests that its period of strength may not run out until the end of the week.

ZeroHedge reports, “Remember: the catalyst for last Friday's 666 Dow point plunge had nothing to do with a surging VIX and everything to do with bond yields blowing out to 2.85% after the stronger than expected hourly earnings number (which was largely the result of a drop in weekly hours worked).

Well, it may be time to batten the hatches again because as we warned first thing this morning, it is time keep an eye on today's 10Y auction for an indication if last week's yield's jump would continue. It now appears that indeed the primary driver for the selloff may be here after an especially sloppy 10Y auction, following yesterday's subpar 3Y.”

Regards,

Tony

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As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals.

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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