Buying the dip isn't working so well anymore; maybe it's time to consider the alternative.

It May Be Time To Ditch Buy The Dip And Turn To Sell The Rip

September 23, 2020

STOCKS – BAC, AMZN, NVDA

Macro – SPY, QQQ, TIP, GLD

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Well, that went the way it was supposed too. Fill the gap, continue the previous trend. The index opened at the gap fill at 3,320, and once the bulls couldn’t pierce that level, the decline began. It broke 3,300 and never could reclaim it; it was over.

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I noted around 1:30 in chat that if the index broke 3285, it would complete the head and shoulders pattern on the intraday, and that pretty much sealed the deal. 

They did manage to close the index right above Monday’s lows, but my feeling is that those levels won’t hold tomorrow. The next level to watch is 3180. (Premium content – Stocks Fail, 2,860 Still In-Play)

Nasdaq 100 (QQQ)

The Qs have formed a relatively straightforward trading channel, and if this is the direction we will take, selling the rip is likely to become a term we should become familiar with, and $257 is probably next.

Unfortunately, as of 8:15 PM ET, the S&P 500 futures were trading down another 25 bps and taking out Monday’s low.

Fear

The big problem is that the VIX and the put to call ratio tell you there is hardly any change in the fear level in this market than before the sell-off began. The put to call ratio is still well below 1, at 0.897. Typically a bottom comes when the put to call ratio reaches something greater than 1.3.

Dollar (UUP)

The dollar will continue to wreak havoc on risk assets. The problem is that its gains are only starting. The dollar index I think can make it back to around 96, and perhaps to 98. 

Gold (GLD)

Gold is breaking and is likely to fall to $1790; blame the stronger dollar. 

Keep an eye on the TIP ETF, not the healthiest looking chart. If TIPS starts falling, then it likely means breakeven inflation rates are falling. If those inflation expectations are falling, say goodbye to whatever is left of the gold trade, and it is probably not a good sign for earnings expectations and the stock market. 

Amazon (AMZN)

Amazon was not even able to make it 3,160 and is now filling the gap lower. What a difference a day can make. It isn’t over either. 2,800 is likely only its first stop. 

 

Nvidia (NVDA)

Nvidia is hanging on by a thread; it is posied to crack, with the next stop at $427. 

Bank of America (BAC)

Bank of America is likely heading to $22.45

For now, the analogy continues…

Meanwhile, even with the pullback, the S&P 500 remains significantly overvalued when adjusted for long-term earnings growth expectations. (Premium content  – When Adjusting For Growth The S&P 500 Is It Most Expensive In 40 Years)

-Mike

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