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Read the full article here.
We have been light on the mic recently with updates. That’s simply a function of there not being much to alert you to. No news is good news, right?! However, something did occur in the data yesterday that we want to bring to your attention.
The level of sell signals that we monitor each day returned an abnormally high result yesterday. This is interesting to us for 2 reasons:
- A 1 year chart of SPY looks rather muted recently, which doesn’t jive with what we are measuring.
- The last time we had this level of selling in a day was March 23rd, 2018. We’ve included an arrow for you to see exactly where SPY was then. Clearly it marked an exhaustion point for selling in the market. The market marched higher shortly after. We believe the market could be setting up for a run higher.
A couple of points of reference:
- The average 6-week return for the Energy sector post the signal is -4.21%.
- The last time we had this signal was on 1/17/18 and XLE fell 13.47.% three weeks later (Feb 8th).
SUMMARY: Caution, speed bumps ahead. Below we are attaching yesterday’s message as we believe the markets should see further downside. As a follow-up to yesterday’s email –
Our ratio dropped to 42.6% this morning and now, based on our data, suggests we should be in for more downside in the market. This, however, will be a great buying opportunity once the selling subsides.
What we are monitoring going forward are:
- Any sign of institutional buying
- Any sign of institutional selling slowing
- An oversold reading in the ratio
We will keep you updated as the current events play out.
The MAP Team
SUMMARY: Our ratio is close to reaching a level that suggests a potential buying opportunity is right around the corner.
Currently the MAP ratio sits at 45.7% and is nearing a level that has historical precedent, 45.6%. We went through our data to see what the forward returns were for IWM (Russell 2000 ETF) in each instance where the ratio decelerated and fell below 45.6%. Because we are near the 45.6% level, we will be monitoring should we break below that level in the coming days.
Below are stats on the 45.6% level and why we feel it is important:
We have had only 6 instances where the ratio has been in a downtrend and then fell below 45.6%. This is out of 1400 trading days of data, so this is a very rare event.
A few observations on market returns post this 45.6% trigger:
1) the market traded lower in all instances
2) the average trading days till reaching the local bottom = 13.33
3) the average return of IWM following each of the 6 instances till the local bottom = -6.65%
Below details the 6 instances where the ratio decelerated and fell below 45.6%:
Below are the historical instances highlighted by a red circle with yellow fill: