Our Macro-Monday analysis, of course, shows continued weakness. View our Macro-Monday stats in the MARKET CONDITIONS section of the site. The rally off recent lows has done little to shift the fundamentals, as the bull / bear ratio remains under .10. Our expectation, at this point, is a failure as we test previous support levels that will now act as resistance.  With that expectation, today we added a short-call vertical to our paper money account.  This is a bearish option trade that benefits from increased implied volatility, pays you a credit to not be wrong and in the event that you are wrong, it is a risk defined trade. 

We are also preparing a bearish watch list, waiting for a better opportunity to add some short positions at slightly higher levels.  We are following our Relative Strength Wednesday work, looking  for bearish delta in the weakest indices.   We are looking for Very bearish rated stocks, with weak relative strength and weak money flow.  While we can't screen for it, we also look for bearish divergences in the OB/OS oscillator.  Our screen yielded about 40 potential shorts. A handful with Chaikin sell signals today.   
We are not ready to to pull the trigger on any of these shorts today, as the rally may have a little steam left in it. 
​As the SPY gets a little closer to 250, and  maybe even 260, we'd re-visit this list and use it to begin scaling into a few short positions. 

Thank you for visiting the Chaikin Power-User blog.  We wish you a Happy New year and great trading and investing success in 2019.   If you have not yet subscribed to Chaikin Analytics,  consider giving yourself the gift of a Chaikin subscription in  the new year! Don't forget to use our discount codes for a nice savings off the regular price. 

We began our weekly portfolio management before Mr. Toad's Wild Ride whipsawed us 800 points on the Dow.  Yesterday, we followed our liquidation rules for our ETF portfolio.   (Video Here).  Today, we are adding trades as market conditions warrant (Video Here)

Here's what we sold in our demo portfolio following our trading rules. 

Here's what our positions look like after making Friday's trades.  Remember, we only trade first and second tier countries and macro ETF's this week based on Relative Strength.  Chaikin Analytics doesn't play a role, beyond offering some technical tools, outside of the US stock market.

After a the tremendous selling pressure we have witnessed over the last several trading sessions, the bearishness expressed in our Relative Strength Wednesday is probably less surprising than the extreme
low of the SPY Bull / Bear ratio.  Healthcare  is the stand- alone sector maintaining at least a neutral plus rating and green in all time frames.  Meanwhile, the Bull /Bear ratio on the SPY reached  not only the lowest ratio we have seen since we started tracking these metrics back in 2014, but also barley above zero, with a ratio of .01   Watch our Wednesday trading meeting HERE

In a month of first-ever data for the stock market, AA just wrote to inform me that,in the five years we've been tracking the bull-bear power bar ratio and other Chaikin Analytics metrics on the  market conditions page, we've not once recorded a Powerbar differential as low at .01 on the SPY.  There are two bullish or very bullish stocks and 135 bearish or very bearish stocks in the ETF.   The Chaikin Power Gauge, which is the underlying metric for each stock in the index is quantimental model of 85% fundamental and about 15% technical data.  Power Bars this low do have a tendency to snap back, so we'll be looking for Neutral + stocks with solid dividends in defensive categories as candidates to play any counter trend rally to the upside.  

Our Market Down call using Chaikin data shifted to NEGATIVE POTENTIAL on 10/8 and to MARK DOW on 10/11.   Our indicator has never been great for market timing, but it sure saved a tremendous amount of drawdown forecasting the black swan event!

In a stunning pullback, we've moved all the way down to the 9+ year bull market trendline, which could act as support.  Keep in mind that this is a monthly candle, and even if the trendline holds when the month ends next week, we could pull down to well below that level before snapping back.   We'd expect the market to hold support and at least deadcat bounce at this level, but perhaps not before we experience a cascading downward spiral well past support before buyers step in snap us back to this level.  That would produce a hammer pattern, likely with a long lower shadow given the amount of panic the market is experiencing.

Ot should come as little surprise, our Macro-Monday analysis continues to make the bear case. Utilities now the only sector with a bullish ratio and our relative strength analysis showing the strength limited to currencies, gold and treasuries, it is undoubtedly risk off. You can see all of our Macro-Monday work on our Market Conditions Page However,  today we talk about our expectations for a rally.  If we see a rally we would look for it to hit its head around 2500.  We have both a bullish and bearish watchlist ready to act on, depending on the market action.  In addition to our normal Macro-Monday, today we run through the exercise of creating those lists. Watch the video HERE

Wanted to share a pretty reliable price pattern with you.   It's called a head and shoulders top and, especially when viewed across longer time frames such as weekly bars, it tends to confirm a trend reversal -- in this case the rally that began in November 2016.  

For those trading in the Chaikin Analytics 3 to 6 month time frame sweet spot, I'd caution against aggressively loading up on too many Very Bullish positions if we experience a sharp reversal. After the initial break through the neckline, price throws back and retests old support which then acts as new resistance.  We could make it all the way back to 2600 before rolling back over and down, or the bear market rally could be shallow..perhaps up to 2530 (February lows).  The way price is acting now, we could hit our downside price target without ever retesting broken support.  This is one of those black swan market periods we get about 1% of the time.   A head and shoulders is a TREND REVERSAL pattern, which means the stock market could make a series of lower highs and lower lows for an extended period.  Until price gets above 2600, I'm bearish.  Until price breaks above 2800, I'm no better than neutral.   -- Mike

, Though overall our market posture is bearish, there is one bullish strategy i like to use for investing in down markets: selling cash covered puts on dividend paying stocks (with a history of dividend increases over the long term), with the intent of picking up the stock at a discount from current price.  Electric utility Consol Edison $ED is a strong candidate.  The stock itself meets our usual Chaikin Analytics checklist - Very Bullish, strong Industry and sector, superior relative strength, strong money flow, near oversold, price above  rising Chaikin long and short term trend lines.  Pus, the stock itself pays a dividend of better than 3.5%.   

Rather than buying the stock at the open on Monday or when we get an Oversold Buy Signal,  I could sell a put below the current market price and take advantage of inflated option prices in this volatile market.  Selling the Out of the Money $77.50 put would pay me about $1.70 (2.2% of the share price at that strike. Not bad for a defensive utility stock!).   The more aggressive trade would be the $80 strike, paying about $2.70 to hold the put until February expiration.   I like that trade, because I want the stock the get "put" to me for its next dividend date, which should happen just after earnings on February 21st.  The dividend will put an additional $.72 per share in my pocket

So, I can get paid $2.70 in option premium and a $.72 dividend just for agreeing to by the stock at $80 at February option expiration.  I like that!   There's some risk involved - holding through earnings, naked option exposure is a very precarious stock market, the stock price appreciating beyond $80 before it's put to me, etc.  But the risks are less than buying and holding the stock outright, because there is close to $3.50 in downside protection should price decine.  We'll go over the trade, manage the risk and put it on in paper-money coming up in Monday's video.  Let's find out if selling puts in a precarious black-swan market works out.  Another way we can use Chaikin Analytics to gain an investing edge in the markets!

​--Mike 

AA and I reviewed the market during our Thursday trading meeting, then placed trades according to our rules. With hindsight of an additional 100 point fall on the SPY since the time we made this video, you can see our approach to risk management helped mitigate losses.  This is a long-only strategy, though our rules allow for some short-market macro ETF's.   Here's the video. 

Below is our updated Position Statement.   We started this long-only ETF portfolio in October, about the time the market started tanking! I grabbed this position statement after the Friday market close.  

It seems more appropriate to call this edition of relative Strength Wednesday, Relative Weakness Wednesday.  XLU is the lone sector maintaining a Very Bullish PG, and one of few still outperforming the market in all 3 time frames. As the market awaits the words of Powell later today in hopes that his words can coerce the bullish sunshine to warm the market, we cant help but notice the collapse of oil, the narrowest sector ratio chart we've seen in years ( Seen in market conditions)  an anemic SPY bull / bear ratio and weak technicals.  While a strong rally is possible, failure, in our opinion, is probable.  See our complete Relative Weakness Wednesday video HERE

Our Macro0-Monday analysis paints an increasing bearish picture. The bull / bear ratio on the SPY has once again dropped below .40,  since we've been tracking the bull / bear ratio mid .20's has been the bottom, we'll see if we get back there and if it holds.  (The above chart is the daily bull / bear ratio going back to 2014 expressed in a line chart. )  We, Like Marc, are looking for lower lows. If you subscribe to the app, make sure you read Marc's weekly note this week.   However, if they rally, we would expect it to fail and we'd take that opportunity to establish a few small bearish positions.   We make a watchlist for that event today.  

You can view our complete Macro-Monday video HERE.   
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You can find the sector bull bear , SPY bull / bear and macro relative strength charts in the Market Conditions Tab HERE