The following post was originally issued to The Lyons Share members on Friday, October 26, 2018.
More like “CRASH AVERT”. With yesterday’s rally ancient history, indices plunging to new lows, panic finally started to set in this morning AND being a Friday, concerns of a crash began to become real. At least among market participants and talking heads. Do we think the market crashes here? No…although, there is always a small possibility. Our guess is that, since it is a Friday, the market may sell off into the end of the day, leading to hand-wringing and crash fears over the weekend. Again, though, it would be a bit out of character for a legitimate crash to materialize here (not to mention the mechanical exchange protections in place to prevent such a scenario).
Rather, we believe the best evidence of a tradeable low is (finally) here. In Wednesday’s selloff, the large-cap indices, e.g., S&P 500, Dow, Nasdaq 100, finally hit minimum downside levels that we were waiting for in terms of satisfying, in price terms, what we were looking for in establishing an initial low. Of course, the broader averages, e.g., Value Line Geometric, Russell 2000, S&P Mid-Cap, had already tested and held key levels. In Wednesday’s drop, those levels were therefore convincingly broken, opening the path to the next major level lower. With further selling pressure today, those levels were tested or nearly tested. Furthermore, we saw some volatility readings, e.g., VXN and RVX, approaching levels we wanted to see to form an initial low.
Thus, we would suggest we are near a “dip your toes in the market” opportunity. In other words, at the nearby levels listed below and sentiment readings, etc. — while the risk of a “crash” is a reality, though small — the risk/reward ratio is now overwhelmingly positive for the near-term. Therefore, small long positions may be adopted near such levels (small positions x big near-term upside = good potential profits).
- Value Line Geometric Composite: 512-508 (for reference – no tradeable equivalent)
- S&P 500: 2620 – 2610 (SPY is ETF equivalent)
- Dow Jones Industrial Average: 24,300 – 23,900 (DIA is ETF equivalent)
- Nasdaq 100: 6760 (QQQ is ETF equivalent)
- Russell 2000: 1437 – 1412 (IWM is ETF equivalent)
- S&P 400 Mid-Cap: 1752 – 1733 (MDY is ETF equivalent)
If you’re interested in the “all-access” version of our charts and research, we invite you to check out our site, The Lyons Share. FYI, given the current treacherous market landscape, TLS has extended our CRASH SALE through this weekend. So considering the discounted cost and the current treacherous market climate, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!
Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.