We finally got a market bounce last week thanks to relaxed language from the Fed and data showing that the economy is starting to slow (slowing is a good-ish thing right now). An example of this weakness can be seen in the University of Michigan consumer sentiment. Friday’s report was lower than expected and the trend is obvious. Sure looks recessionary to me.
Despite the strong gap-up on Friday, I remain largely on the sidelines. The market needs time to absorb this multi-month sell-off and relief rallies are life lines for bag holders. It feels good to sell the crap and start fresh. I’ll keep the same mindset headed into Monday. If the market opens higher, I’ll likely start closing out long positions and happily get out of the way.
At some point I’ll move back in long, but this environment is very difficult to read. Do we follow the charts or stay on the sidelines as a recession looms? I’m going to keep it simple. Until proven otherwise, we’re still in a long-term downtrend and that descending trendline is everything. The yellow box is my watch zone and I would really like SPY to spend some time in that space over the next few weeks. For now, I’m selling longs on strength and waiting.
Trade ’em well.