Mixed Emotions on Present Tape, But Still Bullish

Let me preface this blog by stating I am 100% long and bullish. I am bullish for various reasons, in spite of the recent technical carnage that has caused traders so much anguish in this little squall. It might seem like a significant moment but this too shall pass and become nothing but a faint memory in the grande scheme of things.

Reasons to be bullish:

1. Election year
2. Nothing bearish has actually occurred recently
3. Earnings have been good.

Reasons to be bearish:

1. Seasonality
2. Valuations on tech is at historically high levels
3.Technical patterns might indicate a worsening is looming

What do I mean by the last statement? I mean a head and shoulders formation on the $QQQ now.

It’s not the cleanest pattern but it’s there. But it’s not the pattern of the head and shoulders that is important but the psychology. It goes something like this: Oh gee isn’t this great. The dip was bought and we are heading to new highs. We are at new highs and we hope to go higher. We have cracked lower, quite sharply, and I hope we bounce, else all is lost, apparently. We V shaped higher and might be barreling towards new highs again.

Lastly, oh no we are cracking lower again. Maybe I should take some recent gains off the table in the event we “retest recent lows”.

Price action is always driven by core fundamentals in the long term. But there are peaks and valleys along the way and those are dictated by greed and fear, the relationship between people and their money.

We measure the fear and greed in Stocklabs using algorithms and they’re called mean reversion signals. When technical levels reach a certain point there is a catalog of history to reference to see how that relationship held up in the past. We track the performance in what is called “back testing. ” Presently we have oversold signals in the $SMH and $QQQ and the data is strong, suggestive that in previous occasions at these technical levels, people bought stocks. Naturally, every time is different and past results are not indicative of the future. But like the saying goes “history often rhymes” or something akin to that.

Let’s see how this plays out.