A State of Fear
Premium Section: Hurst Cycles for the Russell 2000 and Gold
The fear of a renewed trade war with China brought the market to a state of extreme fear as shown by the Fear & Greed Model below:
However, despite a spike in the VIX (now above 20), the technical damage to the S&P 500 (SPY) is not that bad. In fact, today the SPY closed above the 20 SMA (grey), which is a sign that the uptrend is intact once again. The VIX Curve (VXV/VIX) is making a double bottom near the 1.0 mark (red line). The VIX Curve often bottoms near the 1.0 mark before starting a new uptrend, which is bullish for risk assets. When the VIX Curve starts a decisive uptrend, look for new highs.
The reason for the muted level of technical damage is because Smart Money has been buying the dip. It can be assumed that there is high probability that they will be able to sell out at higher price levels in the near future.
What does the Cycles SMA system say for the SPY? First, the 30 SMA (green) held as support, as it has during the entire uptrend since April. However we are still in congestion as price is below the 10 SMA (sky blue). The 3 SMA (black) is still below the 6 SMA (blue) so the uptrend is still being sorted out. RSI is above the 50 mark, so there is still strength in this market. The TTM Squeeze indicator is in the squeeze, so a time of compression is expected, before a new explosive move is ready. Patience is key at this time.
The Nasdaq 100 (QQQ) is pretty much the same story. For QQQ or SPY, swing traders can hold a long position and use the 30 SMA as a stop-loss level.
The Russell 2000 (IWM) currently has relative strength as price is above all moving averages. Additionally the 3 SMA is above the 6 SMA, which is often a sign that the uptrend is back in full force. The TTM Squeeze is beginning to fire long (sky blue bars) and this could lead to a powerful move higher.
Semiconductors (SMH) is showing relative strength to the market, and this is a positive sign that risk-on appetite is still there. Price is above all moving averages and the 3 SMA is about to cross above the 6 SMA. Look for SMH to hit new highs soon.
We believe the recent injection of fear into the market will ultimately prove to be the buying opportunity investors have been waiting for before the next explosive move to the upside begins. The recent choppy action likely reflects a period of institutional accumulation. We hope this analysis helps you capitalize on opportunities and make money into the end of the year.
Hurst Cycles have been the most accurate and useful cycles in recent times. In the Premium Section we’ll go over Hurst Cycles for two of the strongest asset classes: the Russell 2000 and Gold.
Disclaimer - All materials, information, and ideas from Cycles Edge are for educational purposes only and should not be considered Financial Advice. This blog may document actions done by the owners/writers of this blog, thus it should be assumed that positions are likely taken. If this is an issue, please discontinue reading. Cycles Edge takes no responsibility for possible losses, as markets can be volatile and unpredictable, leading to constantly changing opinions or forecasts.