Commentary

No 1 Percent Rate Cut

SPY 30 Minute

SPY and associates took the Fed news pretty well for an hour, but then headed south for it’s largest one day decline since March 21.

SPY Daily

March 22 is the large blue candle in the middle of the chart. That decline was contained between the levels of the 18 and 54 day moving averages. Today’s decline didn’t reach the 18 day moving average, so in that respect, the issues today weren’t as serious. However long positions taken 7 days ago are generally underwater.

QQQ Daily

QQQ has been uncharacteristically weak for the past few days and shows the usual 7 days congestion. It had been green for 22 straight days.

IWM Daily

Today shows why it paid to hesitate before buying the IWM break out. Not only did it lose $1.79 but it wound up in a place where selling for a loss isn’t easy. The 13 week moving average is close to 155. I don’t expect IWM to lead the rebound.

General Remarks

I examined the rate of change and linear regression strategies with some care last weekend. They are both consistently profitable, but especially so when a market has sharp declines as we saw in 2018. This allows the strategies to mask their flaws by avoiding the declines. The concept of buying the close of the first green bar works well in such cases as the strategy will not hold during negative return periods. In more usual market conditions, buying on the first green candle seems to be a bit late.

The current situation is neutral, my guess is that SPY is vulnerable to a pullback to the March 21 swing high of about 285, the 54 day moving average is currently at 283.52. The corresponding QQQ swing high on March 21 is 182.83, and VTI is 146.84.

I probably pay more attention to seasonality than is healthy, but May is not one of the top 10 months for stocks historically.

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