I am not going to talk about old setups and signals I showed you in the recent weeks and months, but I want to show you this long term signal that no body knows about. The signal usually shows up before an important market decline or bear market. The indicator is a correlation between Russell 3000 Growth index and Russell 3000 Value index.
As explained on the chart, when the correlation between growth and value drops significantly, it is a strong indication that growth stocks negatively decoupled from value stocks. In other words, there was a period of time money rotation from growth (risk) to value (safety) was intensified.
Trends don't turn on a dime. Whatever was the reason for this long term rotation, will be there tomorrow. That makes the trend.
Another long term signal that usually shows up before a market plunge is seen on this MOVE index. The MOVE index is the bond market’s equivalent of the VIX.
I am not going to get into deep explanations but as you can see from the chart below , such values near 50 preceded the 91 recession, the Nasdaq Bubble and the credit crisis.
We shorted this market several times this year and did great overall, we have shorted recently and doing ok so far. We like to trade it on the short side in certain periods because this is a transition period from bull to bear market and next big surprises will come on the downside.
For example, when SPX tested the neckline after the FED, it was a great opportunity to short it because the transitional condition I pointed out above was as alive as it was before the FED
And leaning towards bearish possibilities during down cycles usually pays off very well. For example last Friday near the close, I saw this possibility based on the chart patterns and sent an update to our members:
As we approach the session end, I started watching this Dow chart which I was posting before FED. The index will breakdown eventually but if the index closes the session near the trend line today (some 100 points away from where it is now), there is a possibility that we may see a nasty bloodbath during the overnight/premarket trading on Sunday.
and that is exactly what happened
There is no long term directional trend anymore but a new one is well underway. We are still in a transition period but we might have seen the high for this bull market already. Shorting the bounces despite FED and other CB actions started paying off quicker than ever because their actions or actionlessness don't help this saturated market anymore.