The market has continued its August selloff…
And depending on where you turn, analysts are either predicting a slide in U.S. stocks… or a fresh market rally that could start as soon as this week (possibly incited by Fed Chair Jerome Powell’s speech at Jackson Hole later this week).
But is that really enough to predict the market’s direction? Or is that just more noise?
Noise can get so loud, it starts to distract even experienced investors.
That won’t help you profit… but this will…
Here’s What’s Going On in the “Four Corners” of the Market
Stocks, bonds, futures, and currencies — they all forecast where the market is and where it’s going. That forecast becomes even clearer when you see them all together. And, if you’re able to take a broad look at all of that, you can unlock the opportunities the stock market is offering each week.
That’s why I’m always checking in on these asset groups — what I like to call the “Four Corners”. They’re my favorite tool to track (and even predict) the markets. Altogether, they give you a nice overview of what’s coming, and how to prepare for it.
And here’s what they’re saying…
S&P 500:
This week, I want to start out with something a little different. Normally, we start the “four corners” with a look at the S&P 500, but today, I’ve pulled some year-to-date charts for the other major indexes and drawn Fibonacci lines on all of them.
Anything you trade (whether it’s stocks, bonds, commodities, futures, or currencies) tends to pull back to these percentage retracement levels before resuming the overall trend either up or down, which is exactly why technical analysts love the Fibonacci sequence. It’s easy to spot — and trade — trend reversals right down to the decimal.
This is not a market call stating the markets will retrace to one of the Fibonacci retracement levels shown, but simply where those Fib levels live. As technical analysts, it’s important to keep these things in mind — especially in an environment with catalysts for a bounce.
SPDR S&P 500 ETF Trust (SPY) and the other two major indices fell for a second straight day. The primary catalyst being written as the cause for this is intimation the Fed is not done raising interest rates, as inflation concerns are still there.
A pullback, even one to just to the 38.2 Fib level might be looked at as manageable as investor and options traders find securities at a decent sale price and start redeploying their investment and trading capital again at that level — if not sooner. This could be a nice catalyst for a technical bounce off of this level.
While we wait for further confirmation that the bull rally is ready to resume, the best way to grow your profits is with a strategy that can make money no matter which way stocks are moving — up or down.
That’s why I want to share an interview I just recorded with my top student, who recently blew me away with his ability to do just that. He’s found a “Goldilocks” pattern in stock movements that’s made him money on 8 out of every 10 trades he’s placed whenever he’s seen it come up.
Thanks to that kind of consistency, he’s beaten the world’s best traders by 15X over the past three years.
And last week, I finally held his feet to the fire to get him to share this strategy — 25 years in the making — and explain how anyone can use it. The full presentation is right here.
Bonds:
For the first six months of the year, you could make a case that iShares 20+ Year Treasury Bond ETF (TLT) was stuck in a trading range between support at $99 and resistance at $109.
In May, TLT started trading in a narrower price range where $104 acted as resistance. Any anticipation of TLT bouncing off support was quelled by its price breakdown of $99 in July.
One way to anticipate a price move is when a security trades out of a box range, look for the security, once its broken above or below the range support or resistance, to move in the direction of the break the amount of the range it broke from. That means TLT could fall 10 points below its previous support around $99 before finding new support.
Currencies:
Look at the left side of the Dollar Index Fund (UUP) chart below.
They are spaced in only $0.10 increments, which means to us the price moves in UUP aren’t robust enough to pursue options trading on UUP itself.
What we analyze UUP for is to gauge a directional bias into the U.S. market.
If money is flowing in to the UUP, it indicates the U.S. dollar is strong.
That puts pressure on the currency of foreign markets, and their buying power goes down.
This may result in U.S. equities trading down. It also works in reverse, but right now a strong UUP chart is happening while SPY is on a slide.
Gold:
I am a long-term gold bug. In fact, over three dozen charts from across the globe all point to one thing…
Gold’s about to make a historic move, and my analysis shows it could soar to $5,000.
That being said, it doesn’t mean there won’t be times when the chart on GLD shows a bit of selling, like it has been doing since its peak in July.
For most of the year, $176 has acted as price support. Last week, GLD broke through that support. A fill of the gap down to $174 wouldn’t be a surprise.
If it turns out to be a false breakout, a bounce higher from here and a close above that support line could give gold bulls a bit of a reprieve.
To your continued success,
Tom Gentile
America’s #1 Pattern Trader
