In yesterday’s Morning Report, we decided the sell-off was overdone and went for the Russell (/TF) Futures longs at 1,480 and yesterday afternoon they blasted back to 1,520 for a $2,000 per contract gain on the day and this morning at 1,530 for another $500 per contract and NOW we are flipping short – but more on that later. Remember, we are still playing the bounce lines from the charts we made for your last week – so none of this is a surprise and none of this, so far, including this morning’s pop in the Futures, is indicating a true recovery yet.
The S&P Futures (/ES) this morning are topping out at 2,720 and our 5% Rule™ Bounce Chart from last week (2/9) has, so far, predicted the moves perfectly:
All we are doing, so far, is topping out at the same place we bounced on 2/7 and that’s being mirrored on the other indexes so the lines we need to be over now – in order to call today “bullish” are Dow 25,200, S&P 2,715, Nasdaq 6,700 and Russell 1,520 and, so far, the Russell and Nasdaq are a bit over but the Dow and S&P are below. Don’t forget, we topped out at 2,872 on Jan 26th so there’s really nothing impressive about 2,720 – other than the fact that we came back from 2,600 but it’s only a halfway recovery (not even) at this point and, if we fail to get over these lines, it’s as likely we’re consolidating for a move down after 2 weeks as it is we’re moving back up.
Fundamentally, nothing has changed and you saw how quickly the market can still move down (and recover) yesterday. Our 5% Rule™ takes into account that it’s easy to manipulate a rally that recovers 20% and 40% of a drop if it’s done quickly enough and we take into account the idiocy of dip buyers as well. Not that all dip buyers are idiots – we had a field day adding stocks to our portfolios over the past two weeks – it’s just that we added well-hedged positions and now it is time to improve our hedges, many of which we flipped bullish since the big drop.
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