5/17 Market Wobbles
Speed Wobble Continued
A Little Market Wobble
The Wednesday note described the mid week market as hitting a little speed wobble, that continued under the surface through the Friday session. There is no immediate concern, or meaningful change to navigating the short term until further damage under the surface that triggers an alarm scenario. Keep in mind, the index through last week has successfully traded 2 of the 3 upside targets. While both targets were mostly arbitrary relying on psychological price targets, each level traded with clarity. A nice reminder that psychological targets hold value when navigating uncharted territory— we’re programmed to like whole & clean numbers.
Looking ahead into next week there is a reasonable probability that the index visits levels I am affording “the benefit of the doubt” for support. The risk-on barometers are sitting right at key support levels that need to hold to support continued strength in the advance.
The system use here rarely marks a top, the signal is designed to lag the top in exchange for increased probability that risk is increasing and time to protect capital has arrived. The market is certainly not there yet. I write this as a reminder that risk often happens fast, and the transition to a defensive posture for me is automatic. In the scenario a risk-off alarm is triggered with next day confirmation the change is simply automatic— sell and hedge.
For now, and to start the week we continue to operate int “risk-off criteria 0-2 (in absence of risk off environment)
Reference: “How I Think About The Risk-Off Alarm”
Risk-Off Criteria 0-2 (In Absence of Risk-Off Environment)
In the absence of an alarm triggered risk-off environment, the risk criteria will oscillate between 0-2
Signals an environment to position long, consider individual trade ideas, identify core trades for outperformance. This environment I’ve over the years described as bullish until proven guilty. I do not complicate it anymore than “stay long”
Risk-off alarms can trigger during this period— without next day confirmation the alarms can be quickly dismissed
versus a “risk off alarm”
Risk-Off Alarm
Triggered when trend, breadth and momentum simultaneously close negative
Signals a risk-off environment
Reduce long exposure, take profit/review closing individual trade ideas, hedge long exposure, consideration for short trades
The environment is defined as risk-off from the confirmed alarm signal to the point where the risk-off criteria record 0/3 for two sessions. Throughout the risk-off period the criteria can oscillate between 1-3