Is the bull market finally dead?

Jim_SamsonWell, Mr. Expert, it seems you got what you wished for: almost a 10% correction in the markets. Was it everything you hoped for? Funny, I didn’t sense much relief and joy at what you wanted, only panic. And I certainly didn’t see you step in and buy in a big way!

After what was something of a flash-crash last week, understandably, there’s a lot of confusion out there now about what happens next.

Regular readers know I’ve been expecting some volatility after some of our leading indicators warned us, so let’s see if we can cut through the confusion by letting the market tell us its thoughts…

The confusion the experts may be feeling now in wake of their wish coming true is down to the underlying trend changing. The trend is your friend until the trend changes, and some trends have just changed. You can make good money just by being in synch with the trend, which is why I study it so closely. The way we can assess the trend is by drawing simply trend lines on a chart.

Here’s the benchmark S+P 500 (the straight blue line I drew to represent the trend):

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As you can see, the upwards trend I’ve been commentating on has now been broken, and therefore we are waiting for a new trend to emerge. My best guess is that it’s a sideways one, but we have to wait and see. One thing that I can say though is that this bull market is at least ‘on pause’, perhaps even over based on this chart.

One security that is the mirror opposite of the overall market tends to be that of VIXY. VIXY is a fund that is based on the volatility index (VIX). It goes up if the market goes down and vice versa. I find the chart of VIXY to be more tradable and predictable that that of the VIX itself. Here’s the long term chart, where I’ve drawn a straight blue line to represent the trend:

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As you can see, VIXY has broken its trend too, only in a positive way. When the bear market comes, VIXY will do well.

So my conclusion about what to do next depends on what your time frame is. If you’re an investor with nest-egg money (with a 1 year+ time frame), I would say it’s time to move to cash until more unfolds at least.

If you’re a trader with a shorter term perspective looking to keep scalping profits along the way, what’s left to trade?

Firstly, be prepared for up and down swings in the market as it finds new direction. If you can be on the right side of those, great. If not, watch out. Also, check out one industrial sector that doesn’t appear to have broken its upwards trend: healthcare…

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And finally, let’s have a look at how gold fared through the volatility:

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Gold (GLD) did what I hoped it would: bounced off support around the $115 area. As you can see, it’s still in that slightly downward channel though, and this isn’t a tradable buy until it hits $130. But volatility is on gold’s side, and volatility is perhaps the one thing we can be certain of for now.

The author has an interest in the securities discussed in this article. Source of charts: stockcharts.com

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