I read charts. I also read past data and try to get an idea on whether to be in or out based on a trend. I need price to prove to me that it is likely to go in one direction or the other so I will know what to do. Today after 18 trading days of watching the S&P 500 slide sideways inside a bull flag, she came busting out the top with a 1.22% gain. The S&P 500 closed at $1587 which is 17 points above the top of the flag. Tomorrow in order to confirm this breakout, we need a closing price above $1570. So we can actually give a lot back and still have a confirming breakout. What would be nice to see tomorrow is price hold $1587 or higher to confirm a strong breakout.
The Flag and breakout is very easy to see on the chart above and you do not need me to point that out to you. But what next? In the technical world of charting there is something called a measured move from the point of breakout then adding the length of the pole. I marked the pole in light blue. That pole length is 165 points and if you add that to 1570, well you have a target price or measured move of $1735. There is no fundamentals or news here, just a technical measured moved. So what does it mean? It means a trader, as in myself, would expect price to move up to $1735, stall and go sideways, or reverse. So said trader would also be looking to sell in that area. There is no guarantees we are headed higher tomorrow or in the future, but it is great information to know. I will have just a little more to say about the S&P 500 at the end of this post.
So before we go outside and start dancing in the streets, we should look at the damaged Small Cap fund. The Small Cap has made a nice recover back inside the bull flag. Price also closed above the intermediate uptrend which is a bonus. Two days ago price created a higher pivot low and this to is a bonus. So what needs to happen here? Price has to continue up and out of the bull flag and in my opinion needs to take out the recent highs of $826. Take out the recent highs and close, and stay above them. Do not get me wrong, the Small Cap had an awesome day with a 1.44% gain. I’ll have more at the end of this post on the Small Cap.
Two days ago price close up and out of the bull flag prior to todays big move in our markets. Yesterday it closed even higher and confirmed a strong breakout. Because of all the churning we have seen since the beginning of February, I had no confidence in this breakout. Yes, I should have posted it yesterday at the latest, but I had not faith. Today we came very close in taking out the recent highs and I think that will be the last item to fall. Tomorrow should be that day. So I will be watching the International index tomorrow as well.
Bonds? We got the buy signal just a few days back. I did not take it and I posted that I didn’t take it because I wasn’t ready to go conservative. I wanted stocks to tank or climb to tell me what to do. I did make the comment that if stocks broke out of that bull flag, bonds could be in trouble. Currently bonds are retracing to the downside but are safe. No warnings have been fired to bailout, so if you’re in, staying in is not a bad thing, but you just have to watch closely here. If they do start firing signals, I will post it.
Conclusion: Let’s pretend for a moment that we are all standing 100% –G and are waiting for entry. Most investors, not traders, look for major pullbacks to support levels to get in. I’m not your normal investor. I trade stocks and manage my TSP and plan to do this till death do we part. So I like to find entries that traders use. I use pivot points. I use bull flags. I use a combination of trend lines, CBL, and moving averages when I’m looking for a firm exit and entry. So, with all this information, we are pretending we are 100% G looking for signal.
The S&P 500 (C-fund) created a pivot low on the 4/8/13. That was one sign! Today price broke out and closed above the bull flag. That is sign two. So tomorrow, if we hold at or above $1570 by 11:30am, I would stick my toes in. Percentage of your tolerance is approved. If we are holding at or above $1587 by 11:30am, it is a no brainer. I would without doubt stick my toes in.
Small Cap created a pivot low on 4/8/13 and unlike the S&P, it was a definite higher pivot low. Take it from me, that is a good thing. What makes me hesitate here is that bull flag. So to me, if I’m 100% G, I’m not investing a penny in the small cap today. The bad part about this is that it could use up one of your moves on TSP.gov. Solution? L-2050 or L2040.
International also created a pivot low on 4/8/13 and broke out of the bull flag. As I wrote above, the sloppiness of the chart prior to these breakouts, just concern me a bit. If we takeout the highs tomorrow, I feel I would then be with the trend. Same problem here as in the Small Cap, you might use two moves waiting for the buy signal. So once again, looking to go aggressive, L-2050 or 2040.
Bonds, remember we are pretending we are currently 100 G. I would not invest today in bonds if I were out looking in. Not with everything we now know and are waiting on.
So, I will continue to ride my current setup, 50% C and 50% S and wait for an exit sign. No, I do not want an exit sign, but I will wait for one. If you’re out looking for an in, here it is, even though it is at the highs.
Far all of those that hung on with me during the last 3 weeks of drama, go dance in the streets, tonight our accounts have hit new highs once again. My disclosure below.
Good night all.
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